IDEAS home Printed from https://ideas.repec.org/p/ekd/002672/4270.html
   My bibliography  Save this paper

Disentangling the Stern/Nordhaus controversy. Why and how do beliefs and modelling choices matter?

Author

Listed:
  • baptiste perrissin fabert
  • Etienne Espagne
  • Antonin Pottier
  • Franck Nadaus

Abstract

The Stern/Nordhaus controversy has polarized the widely disparate beliefs about what to do in order to tackle the climate challenge. Between Nordhaus' ``policy ramp'' which recommends gradual action to avoid costly premature low-carbon investments and Stern's ``early strong emissions cut'', the policy gap looks unbridgeable. To explain such differences, comments following the publication of the Stern Review (2006) have mainly focused on the role played by the unusual low discount rate retained by Stern. This paper aims at appraising a broader set of reasons for that controversy in order to better understand differences in results. We first assess the impacts of beliefs on critical parameters such as the discount rate but also abatement costs and climate damages that are two other major sources of disagreement between Stern and Nordhaus. Then, we address the modelling drivers of the controversy such as the form of the abatement cost (with or without inertia) and the damage functions (quadratic vs sigmoid), the integration of uncertainty on climate dynamics, and the decision-making framework (one-shot vs. sequential decision) that shape integrated assessment models (IAM). This modelling side of the controversy was vividly discussed during the 1990s in the so-called ``when'' flexibility controversy and was surprisingly disregarded in the more recent Stern/Nordhaus controversy.we built RESPONSE a flexible Integrated Assessment Model that makes it possible to (i) compare Stern and Nordhaus' worldviews within the same modelling framework, (ii) re-build step-by-step the modelling controversy in order to appraise the respective impacts of a broad set of possible combinations of modelling choices.This allows us to qualify the role played by the discount rate in the controversy relatively to other beliefs on critical parameters, and appraise the impact of different modelling choices on results. Eventually, we suggest some modelling conditions for helping reconcile apparently opposite climate-policy recommendations.

Suggested Citation

  • baptiste perrissin fabert & Etienne Espagne & Antonin Pottier & Franck Nadaus, 2012. "Disentangling the Stern/Nordhaus controversy. Why and how do beliefs and modelling choices matter?," EcoMod2012 4270, EcoMod.
  • Handle: RePEc:ekd:002672:4270
    as

    Download full text from publisher

    File URL: http://ecomod.net/system/files/Stern-Nordhaus-controversy-only.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Pearce, 2003. "The Social Cost of Carbon and its Policy Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 362-384.
    2. Tol, Richard S. J., 2005. "The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties," Energy Policy, Elsevier, vol. 33(16), pages 2064-2074, November.
    3. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, January.
    4. Tol, Richard S. J., 2008. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-22.
    5. Ha-Duong, Minh, 1998. "Quasi-option value and climate policy choices," Energy Economics, Elsevier, vol. 20(5-6), pages 599-620, December.
    6. Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
    7. Ulph, Alistair & Ulph, David, 1997. "Global Warming, Irreversibility and Learning," Economic Journal, Royal Economic Society, vol. 107(442), pages 636-650, May.
    8. M. Ha-Duong & M. J. Grubb & J.-C. Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Nature, Nature, vol. 390(6657), pages 270-273, November.
    9. Graciela Chichilnisky & Geoffrey Heal, 1993. "Global Environmental Risks," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 65-86, Fall.
    10. William D. Nordhaus, 2011. "Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model," NBER Working Papers 17540, National Bureau of Economic Research, Inc.
    11. Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May.
    12. Alistair Ulph & David Ulph, "undated". "Global Warming, Irreversibility And Learning," ELSE working papers 056, ESRC Centre on Economics Learning and Social Evolution.
    13. Philippe Ambrosi & Jean-Charles Hourcade & Stéphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha Duong, 2009. "Optimal Control Models and Elicitation of Attitudes towards Climate Damages," International Series in Operations Research & Management Science, in: Jerzy A. Filar & Alain Haurie (ed.), Uncertainty and Environmental Decision Making, chapter 0, pages 177-209, Springer.
    14. James M. Murphy & David M. H. Sexton & David N. Barnett & Gareth S. Jones & Mark J. Webb & Matthew Collins & David A. Stainforth, 2004. "Quantification of modelling uncertainties in a large ensemble of climate change simulations," Nature, Nature, vol. 430(7001), pages 768-772, August.
    15. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
    16. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
    17. Alan Manne & Richard Richels, 1992. "Buying Greenhouse Insurance: The Economic Costs of CO2 Emission Limits," MIT Press Books, The MIT Press, edition 1, volume 1, number 026213280x, December.
    18. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Etienne Espagne & Baptiste Perrissin Fabert & Antonin Pottier & Franck Nadaud & Patrice Dumas, 2012. "Disentangling the Stern/Nordhaus Controversy: Beyond the Discounting Clash," Working Papers 2012.61, Fondazione Eni Enrico Mattei.
    2. Perrissin Fabert, Baptiste & Espagne, Etienne & Antonin, Pottier & Patrice, Dumas, 2014. "The Comparative Impact of Integrated Assessment Models' Structures on Optimal Mitigation Policies," Climate Change and Sustainable Development 177304, Fondazione Eni Enrico Mattei (FEEM).
    3. Patrice Dumas & Etienne Espagne & Baptiste Perrissin-Fabert & Antonin Pottier, 2012. "Comprehensive Description of RESPONSE," Working Papers hal-00866414, HAL.
    4. Nordhaus, William, 2013. "Integrated Economic and Climate Modeling," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1069-1131, Elsevier.
    5. W. Botzen & Jeroen Bergh, 2014. "Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 1-33, May.
    6. Kolstad, Charles D. & Toman, Michael, 2005. "The Economics of Climate Policy," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 30, pages 1561-1618, Elsevier.
    7. Olivier Godard, 2007. "Climat et générations futures - Un examen critique du débat académique suscité par le Rapport Stern," Working Papers hal-00243059, HAL.
    8. Simon Dietz & David Maddison, 2009. "New Frontiers in the Economics of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(3), pages 295-306, July.
    9. Wei, Yi-Ming & Mi, Zhi-Fu & Huang, Zhimin, 2015. "Climate policy modeling: An online SCI-E and SSCI based literature review," Omega, Elsevier, vol. 57(PA), pages 70-84.
    10. Rick Baker & Andrew Barker & Alan Johnston & Michael Kohlhaas, 2008. "The Stern Review: an assessment of its methodology," Staff Working Papers 0801, Productivity Commission, Government of Australia.
    11. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    12. van den Bergh, J.C.J.M. & Botzen, W.J.W., 2015. "Monetary valuation of the social cost of CO2 emissions: A critical survey," Ecological Economics, Elsevier, vol. 114(C), pages 33-46.
    13. Pycroft, Jonathan & Vergano, Lucia & Hope, Chris & Paci, Daniele & Ciscar, Juan Carlos, 2011. "A tale of tails: Uncertainty and the social cost of carbon dioxide," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-29.
    14. Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.
    15. Zhang, Hong & Jin, Gui & Zhang, Zhengyu, 2021. "Coupling system of carbon emission and social economy: A review," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    16. Karp, Larry & Zhang, Jiangfeng, 2001. "Bayesian Learning and the Regulation of Greenhouse Gas Emissions," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2fr0783c, Department of Agricultural & Resource Economics, UC Berkeley.
    17. Finus, Michael & Pintassilgo, Pedro, 2013. "The role of uncertainty and learning for the success of international climate agreements," Journal of Public Economics, Elsevier, vol. 103(C), pages 29-43.
    18. Dellink, Rob & Finus, Michael, 2012. "Uncertainty and climate treaties: Does ignorance pay?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 565-584.
    19. Mason, Charles F. & Polasky, Stephen & Tarui, Nori, 2017. "Cooperation on climate-change mitigation," European Economic Review, Elsevier, vol. 99(C), pages 43-55.
    20. Makropoulou, Vasiliki & Dotsis, George & Markellos, Raphael N., 2013. "Environmental policy implications of extreme variations in pollutant stock levels and socioeconomic costs," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 417-428.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:002672:4270. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.