Are Economists Getting Climate Dynamics Right and Does it Matter?

65 Pages Posted: 28 Feb 2020

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

Rick van der Ploeg

University of Oxford

Armon Rezai

Vienna University of Economics and Business

Frank Venmans

Université de Mons-Hainaut - Microeconomics Department

Date Written: 2020

Abstract

We show that several of the most important economic models of climate change produce climate dynamics inconsistent with the current crop of models in climate science. First, most economic models exhibit far too long a delay between an impulse of CO2 emissions and warming. Second, few economic models incorporate positive feedbacks in the carbon cycle, whereby carbon sinks remove less CO2 from the atmosphere, the more CO2 they have already removed cumulatively, and the higher is temperature. These inconsistencies affect economic prescriptions to abate CO2 emissions. Controlling for how the economy is represented, different climate models result in significantly different optimal CO2 emissions. A long delay between emissions and warming leads to optimal carbon prices that are too low and too much sensitivity of optimal carbon prices to the discount rate. Omitting positive carbon cycle feedbacks also leads to optimal carbon prices that are too low. We conclude it is important for policy purposes to bring economic models in line with the state of the art in climate science.

Keywords: carbon cycle, carbon price, climate change, integrated assessment modelling, positive feedbacks, social cost of carbon

JEL Classification: Q540

Suggested Citation

Dietz, Simon and van der Ploeg, Frederick and Rezai, Armon and Venmans, Frank, Are Economists Getting Climate Dynamics Right and Does it Matter? (2020). Available at SSRN: https://ssrn.com/abstract=3545718 or http://dx.doi.org/10.2139/ssrn.3545718

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

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Armon Rezai

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Frank Venmans

Université de Mons-Hainaut - Microeconomics Department ( email )

Mons
Belgium

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