William D. Nordhaus

To Slow or Not to Slow: The Economics of the Greenhouse Effect

Over the last decade, scientists have studied extensively the greenhouse effect, which holds that the accumulation of carbon dioxide (CO2) and other greenhouse gases (GHGs) is expected to produce global warming and other significant climatic changes over the next century. Along with the scientific research have come growing alarm and calls for drastic curbs on the emissions of greenhouse gases, as for example the reports of the Intergovernmental Panel on Climate Change (IPCC [I990]) and the Second World Climate Conference (October I990). To date, these call to arms for forceful measures to slow greenhouse warming have been made without any serious attempt to weigh the costs and benefits of climatic change or alternative control strategies. The present study presents a simple approach for analyzing policies to slow climate change. We begin by summarizing the elements of an economic analysis of different approaches to controlling greenhouse warming. We then sketch a mathematical model of economic growth that links the economy, emissions, and climate changes and summarize the empirical evidence on the costs of reducing emissions and concentrations of greenhouse gases and on the damages from greenhouse warming, relying primarily on data for the United States. The different sections are then integrated to provide estimates of the efficient reduction of greenhouse gases, after which the final section summarizes the major results.

An Optimal Transition Path for Controlling Greenhouse Gases

Designing efficient policies to slow global warming requires an approach that combines economic tools with relations from the natural sciences. The dynamic integrated climate-economy (DICE) model presented here, an intertemporal general-equilibrium model of economic growth and climate change, can be used to investigate alternative approaches to slowing climate change. Evaluation of five policies suggests that a modest carbon tax would be an efficient approach to slow global warming, whereas rigid emissions- or climate-stabilization approaches would impose significant net economic costs.

Rolling the 'DICE': an optimal transition path for controlling greenhouse gases

The possibility of greenhouse warming has received growing attention in recent years. Many scientific bodies are calling for severe curbs on the emissions of greenhouse gases. To date, the calls to arms and treaty negotiations have progressed more or less independently of economic studies of the costs and benefits of measures to slow greenhouse warming. The plan of the present study is to develop a dynamic, global model of both the impacts of and policies to slow global warming. It is an integral model that incorporates both the dynamics of emissions and impacts and the economic costs of policies to curb emissions.

Economic aspects of global warming in a post-Copenhagen environment

The science of global warming has reached a consensus on the high likelihood of substantial warming over the coming century. Nations have taken only limited steps to reduce greenhouse gas emissions since the first agreement in Kyoto in 1997, and little progress was made at the Copenhagen meeting in December 2009. The present study examines alternative outcomes for emissions, climate change, and damages under different policy scenarios. It uses an updated version of the regional integrated model of climate and the economy (RICE model). Recent projections suggest that substantial future warming will occur if no abatement policies are implemented. The model also calculates the path of carbon prices necessary to keep the increase in global mean temperature to 2 °C or less in an efficient manner. The carbon price for 2010 associated with that goal is estimated to be

To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming

59 per ton (at 2005 prices), compared with an effective global average price today of around

Using luminosity data as a proxy for economic statistics

5 per ton. However, it is unlikely that the Copenhagen temperature goal will be attained even if countries meet their ambitious stated objectives under the Copenhagen Accord.

Forecasting Efficiency: Concepts and Applications

This study reviews different approaches to the political and economic control of global public goods such as global warming. It compares quantity-oriented control mechanisms like the Kyoto Protocol with price-type control mechanisms such as internationally harmonized carbon taxes. The analysis focuses on such issues as the relationship to ultimate targets, performance under conditions of uncertainty, volatility of induced carbon prices, the inefficiencies of taxation and regulation, potential for corruption and accounting finagling, and ease of implementation. It concludes that price-type approaches such as carbon taxes have major advantages for slowing global warming.

After Kyoto: Alternative Mechanisms to Control Global Warming

A pervasive issue in social and environmental research has been how to improve the quality of socioeconomic data in developing countries. Given the shortcomings of standard sources, the present study examines luminosity (measures of nighttime lights visible from space) as a proxy for standard measures of output (gross domestic product). We compare output and luminosity at the country level and at the 1° latitude × 1° longitude grid-cell level for the period 1992–2008. We find that luminosity has informational value for countries with low-quality statistical systems, particularly for those countries with no recent population or economic censuses.

Determining Benefits and Costs for Future Generations

This article introduces the concept of forecast efficiency, in which the forecast contains all information available at the time of the forecast. Empirical tests investigate weak efficiency, where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions. Tests of macroeconomic, energy-consumption, and oil-price forecasts find a significant autocorrelation of forecast revisions, with fifty of fifty-one tests showing positive correlation of forecast revisions, as opposed to zero correlation consistent with forecast efficiency. Copyright 1987 by MIT Press.

Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches

After more than a decade of negotiations and planning under the Framework Convention on Climate Change (FCCC), the first binding international agreement to control the emissions of greenhouse gases has come into effect in the Kyoto Protocol. The first budget period of 2008–2012 is at hand. Moreover, the scientific evidence on greenhouse warming strengthens steadily as observational evidence of warming accumulates. The institutional framework of the Protocol has taken hold solidly in the European Union’s Emissions Trading Scheme (ETS), which covers almost half of Europe’s carbon dioxide emissions. Notwithstanding this apparent success, the Kyoto Protocol is widely seen as somewhere between troubled and terminal. Early troubles came with the failure to include the major developing countries along with lack of an agreedupon mechanism to include new countries and extend the agreement to new periods. The major blow came when the United States withdrew from the treaty in 2001. By 2002, the Protocol covered only 30 percent of global emissions, while the hard enforcement mechanism in the ETS accounts for about 8 percent of global emissions. Even if the current Protocol is extended, models indicate that it will have little impact on global temperature change. Unless there is a dramatic breakthrough or a new design, the Protocol threatens to be seen as a monument to institutional overreach. Nations are now beginning to consider the structure of climate-change policies for the period after 2008 to 2012. Some countries, states, cities, companies, and even universities are adopting their own climate-change policies. Are there, in fact, alternatives to the scheme of tradable emissions permits embodied in the Protocol? The fact is that alternative approaches have not had a serious hearing among natural scientists or among policymakers. What are some alternatives? For global public goods, there are three potential approaches: command-and-control regulation, quantity-oriented market approaches, and taxor price-based regimes. Of these, only the tradable-quantity and the price-like regimes have any hope of being reasonably efficient. Under a tradable-quantity approach, an agreement proceeds by setting limits on emissions by different countries. The limits are partially or wholly transferable among countries. This is the approach taken under the Kyoto Protocol. This approach has very limited international experience under existing protocols such as the CFC (chlorofluorocarbon) mechanisms and somewhat broader experience under national trading regimes, such as the U.S. sulfur dioxide regime. A radically different approach is to use harmonized prices, fees, or taxes as a method of coordinating policies among countries. This approach has no international experience in the environmental area, although it has modest experience nationally in such areas as the U.S. tax on ozone-depleting chemicals. On the other hand, the use of harmonized, price-type measures has extensive international experience in fiscal and trade policies, such as with the harmonization of taxes in the European Union and harmonized tariffs in international trade. These thoughts on the structure of international agreements to control global warming should not be regarded as negotiating strategies