Environment and development: achievements and challenges in climate economics

The economic analysis of the natural environment and of economic development encompasses most complex topics and issues. Accordingly, many contributions in the field are either cross-disciplinary or very detailed and broad in perspective. The core methodology of economics is different, however. Economic models are generally used to drastically reduce complexity and to look at a low number of analytical relationships. This allows for analysis of the basic mechanics of the problems in a concise manner and for the derivation of closed-form model solutions. There are of course seminal contributions using the procedure, e.g., Hotelling (1931) and Dasgupta and Heal (1974). But for the crucial issue of climate change the profession appears to be somewhat reluctant to push strongly for constructing a stringent analytical framework; the field is still dominated by relatively complex integrated assessment models. These yield many important insights but, in certain cases, provide contradicting results and sometimes lack intuition. Hence, climate economic models providing closed-form solutions on future growth and optimum climate policy appear to be warranted.