Humanity does not play DICE: A sensitivity analysis of technical progress

The DICE model claims that technological progress can prevent global warming at low cost. However, its conclusions are predicated on highly optimistic and contested assumptions regarding the costs and effectiveness of backstop technologies, as well as the magnitude of climate damages. This study assesses the robustness of the DICE model’s recommendations by exploring their sensitivity to these core assumptions. We investigate scenarios where assumptions prove to be more pessimistic than DICE standard baseline. We employ a large-scale scenario-based analysis to account for the possible range of the climate damage function and the level of efficiency of future backstop technologies, as well as their financial costs. Our results demonstrate that relying on technology alone is a very risky bet; under a wide spectrum of plausible, less optimistic assumptions, 84 % of scenarios lead to a climate-induced economic collapse. To address this fragility, we introduce a social lever into the model: economic sufficiency, defined as the policy option to produce less than the maximum production capacity. The inclusion of this lever dramatically alters the outcomes if the social-planner is enough forward looking. Our study concludes that relying on purely technological solutions is a hazardous strategy under uncertainty and that a dual strategy, combining both technological and social levers, is required to reduce the risk of climate collapse.