Endogenous Growth, Convexity of Damages and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions

Centre for Climate Change Economics and Policy Working Paper 180

Grantham Research Institute on Climate Change and the Environment Working Paper 159

38 Pages Posted: 25 Jul 2014

See all articles by Simon Dietz

Simon Dietz

London School of Economics - Grantham Research Institute on Climate Change and the Environment and Department of Geography and Environment

Nicholas Stern

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Date Written: June 16, 2014

Abstract

'To slow or not to slow' (Nordhaus, 1991) was the first economic appraisal of greenhouse gas emissions abatement and founded a large literature on a topic of great, worldwide importance. In this paper we offer our assessment of the original article and trace its legacy, in particular Nordhaus' later series of 'DICE' models. From this work many have drawn the conclusion that an efficient global emissions abatement policy comprises modest and modestly increasing controls. On the contrary, we use DICE itself to provide an initial illustration that, if the analysis is extended to take more strongly into account three essential elements of the climate problem -- the endogeneity of growth, the convexity of damages, and climate risk -- optimal policy comprises strong controls. To focus on these features and facilitate comparison with Nordhaus' work, all of the analysis is conducted with a high pure-time discount rate, notwithstanding its problematic ethical foundations.

Keywords: climate change, climate sensitivity, damage function, endogenous growth, integrated assessment

JEL Classification: Q54

Suggested Citation

Dietz, Simon and Stern, Nicholas, Endogenous Growth, Convexity of Damages and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions (June 16, 2014). Centre for Climate Change Economics and Policy Working Paper 180, Grantham Research Institute on Climate Change and the Environment Working Paper 159, Available at SSRN: https://ssrn.com/abstract=2471019 or http://dx.doi.org/10.2139/ssrn.2471019

Simon Dietz (Contact Author)

London School of Economics - Grantham Research Institute on Climate Change and the Environment and Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/dietzs

Nicholas Stern

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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