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How sensitive is Nordhaus to Weitzman? Climate policy in DICE with an alternative damage function

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  • Wouter Botzen, W.J.
  • van den Bergh, Jeroen C.J.M.

Abstract

The damage function in the famous climate-economy model DICE has received much criticism. Weitzman (2010) has proposed an alternative approach that gives more serious attention to climate change impacts for larger temperature increases. We calculate optimal climate policy with DICE using this approach. Optimal emission abatement trajectories turn out to be very sensitive to the damage specification. We summarise the difference between the associated optimal abatement costs in NPV terms.

Suggested Citation

  • Wouter Botzen, W.J. & van den Bergh, Jeroen C.J.M., 2012. "How sensitive is Nordhaus to Weitzman? Climate policy in DICE with an alternative damage function," Economics Letters, Elsevier, vol. 117(1), pages 372-374.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:372-374
    DOI: 10.1016/j.econlet.2012.05.032
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    References listed on IDEAS

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    1. Martin L. Weitzman, 2012. "GHG Targets as Insurance Against Catastrophic Climate Damages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 221-244, March.
    2. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-937, July.
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    4. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    5. Dietz, Simon & Asheim, Geir B., 2012. "Climate policy under sustainable discounted utilitarianism," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 321-335.
    6. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    7. Nordhaus, William D, 1977. "Economic Growth and Climate: The Carbon Dioxide Problem," American Economic Review, American Economic Association, vol. 67(1), pages 341-346, February.
    8. Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
    9. Ackerman, Frank & Stanton, Elizabeth A. & Bueno, Ramón, 2010. "Fat tails, exponents, extreme uncertainty: Simulating catastrophe in DICE," Ecological Economics, Elsevier, vol. 69(8), pages 1657-1665, June.
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    More about this item

    Keywords

    Climate change; DICE model; Stern discounting;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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