IDEAS home Printed from https://ideas.repec.org/p/ags/aaea14/169952.html
   My bibliography  Save this paper

Loaded DICE: Refining the Meta-analysis Approach to Calibrating Climate Damage Functions

Author

Listed:
  • Howard, Peter
  • Sterner, Thomas

Abstract

Climate change is one of the preeminent policy issues of our day, and the social cost of carbon (SCC) is one of the foremost tools for determining the socially optimal policy response. The SCC is estimated using Integrated Assessment Models (IAMs), of which Nordhaus’ DICE is the oldest and one of the best respected. These numerical models capture the various steps in the climate and economic processes that translate a marginal unit of CO2 emissions into economic damage. While accuracy at each of these steps is necessary to precisely estimate the SCC, correct calibrating the climate damage function, which translates a temperature change into a percentage change in GDP, is critical. Calibration of the damage function determines which climate damages are included and excluded from the cost of carbon. Traditionally, Nordhaus calibrated the DICE damage function using a global damage estimate calculated by aggregating a series of region-sector specific damage estimates (Nordhaus and Boyer, 2000; Nordhaus, 2008). However, in DICE-2013, Nordhaus moved to calibrating the DICE damage function using a meta-analysis at the global scale (Nordhaus and Sztorc, 2013). This paper critiques this meta-analysis approach as it is currently applied and re-estimates the DICE-2013 damage function using up-to-date meta-analysis techniques to more accurately reflect climate damages and the uncertainty underlying them. This paper finds that DICE-2013 damage function significantly under-estimates climate damages by a factor of two to three.

Suggested Citation

  • Howard, Peter & Sterner, Thomas, 2014. "Loaded DICE: Refining the Meta-analysis Approach to Calibrating Climate Damage Functions," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169952, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:169952
    DOI: 10.22004/ag.econ.169952
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/169952/files/PeterHHoward_AAEA2014_2.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.169952?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mendelsohn,Robert & Neumann,James E. (ed.), 2004. "The Impact of Climate Change on the United States Economy," Cambridge Books, Cambridge University Press, number 9780521607698.
    2. 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.
    3. Richard Tol, 2015. "Bootstraps for Meta-Analysis with an Application to the Impact of Climate Change," Computational Economics, Springer;Society for Computational Economics, vol. 46(2), pages 287-303, August.
    4. 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.
    5. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    6. Maddison, David & Rehdanz, Katrin, 2011. "The impact of climate on life satisfaction," Ecological Economics, Elsevier, vol. 70(12), pages 2437-2445.
    7. Karp, Larry, 2005. "Global warming and hyperbolic discounting," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 261-282, February.
    8. Garnaut,Ross, 2008. "The Garnaut Climate Change Review," Cambridge Books, Cambridge University Press, number 9780521744447.
    9. Roy Brouwer & Frank Spaninks, 1999. "The Validity of Environmental Benefits Transfer: Further Empirical Testing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 95-117, July.
    10. Martin L. Weitzman, 2011. "Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 275-292, Summer.
    11. Richard S.J. Tol, 2011. "The Social Cost of Carbon," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 419-443, October.
    12. Maddison, David, 2003. "The amenity value of the climate: the household production function approach," Resource and Energy Economics, Elsevier, vol. 25(2), pages 155-175, May.
    13. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January.
    14. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
    15. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
    16. Rehdanz, Katrin & Maddison, David, 2005. "Climate and happiness," Ecological Economics, Elsevier, vol. 52(1), pages 111-125, January.
      • Katrin Rehdanz & David J. Maddison, 2003. "Climate and Happiness," Working Papers FNU-20, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2003.
    17. Jon Nelson & Peter Kennedy, 2009. "The Use (and Abuse) of Meta-Analysis in Environmental and Natural Resource Economics: An Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(3), pages 345-377, March.
    18. Richard Tol, 2012. "On the Uncertainty About the Total Economic Impact of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 97-116, September.
    19. Robert J. Johnston & Randall S. Rosenberger, 2010. "Methods, Trends And Controversies In Contemporary Benefit Transfer," Journal of Economic Surveys, Wiley Blackwell, vol. 24(3), pages 479-510, July.
    20. 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.
    21. Roberto Roson & Dominique Van der Mensbrugghe, 2012. "Climate change and economic growth: impacts and interactions," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 4(3), pages 270-285.
    22. Hanemann, W. Michael, 2008. "What is the Economic Cost of Climate Change?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9g11z5cc, Department of Agricultural & Resource Economics, UC Berkeley.
    23. Plambeck, Erica L & Hope, Chris, 1996. "PAGE95 : An updated valuation of the impacts of global warming," Energy Policy, Elsevier, vol. 24(9), pages 783-793, September.
    24. Peck, Stephen C. & Teisberg, Thomas J., 1993. "CO2 emissions control : Comparing policy instruments," Energy Policy, Elsevier, vol. 21(3), pages 222-230, March.
    25. T.D. Stanley & Hristos Doucouliagos & Margaret Giles & Jost H. Heckemeyer & Robert J. Johnston & Patrice Laroche & Jon P. Nelson & Martin Paldam & Jacques Poot & Geoff Pugh & Randall S. Rosenberger & , 2013. "Meta-Analysis Of Economics Research Reporting Guidelines," Journal of Economic Surveys, Wiley Blackwell, vol. 27(2), pages 390-394, April.
    26. Erickson, Jon D., 1993. "From ecology to economics: the case against CO2 fertilization," Ecological Economics, Elsevier, vol. 8(2), pages 157-175, October.
    27. A. Colin Cameron & Pravin K. Trivedi, 2010. "Microeconometrics Using Stata, Revised Edition," Stata Press books, StataCorp LP, number musr, March.
    28. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    29. Hope, Chris W., 2011. "The social cost of CO2 from the PAGE09 model," Economics Discussion Papers 2011-39, Kiel Institute for the World Economy (IfW Kiel).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Loïc Berger & Massimo Marinacci, 2020. "Model Uncertainty in Climate Change Economics: A Review and Proposed Framework for Future Research," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(3), pages 475-501, November.
    2. Loic Berger & Massimo Marinacci, 2017. "Model Uncertainty in Climate Change Economics," Working Papers 616, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

    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. Peter H. Howard & Thomas Sterner, 2017. "Few and Not So Far Between: A Meta-analysis of Climate Damage Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 197-225, September.
    2. 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.
    3. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    4. Richard Tol, 2015. "Bootstraps for Meta-Analysis with an Application to the Impact of Climate Change," Computational Economics, Springer;Society for Computational Economics, vol. 46(2), pages 287-303, August.
    5. Richard S.J. Tol, 2018. "The impact of climate change and the social cost of carbon," Working Paper Series 1318, Department of Economics, University of Sussex Business School.
    6. Richard S.J. Tol, 2016. "Dangerous Interference With The Climate System: An Economic Assessment," Working Paper Series 10016, Department of Economics, University of Sussex Business School.
    7. Stephen Keen & Timothy M. Lenton & Antoine Godin & Devrim Yilmaz & Matheus Grasselli & Timothy J. Garrett, 2021. "Economists' erroneous estimates of damages from climate change," Papers 2108.07847, arXiv.org.
    8. Richard S. J. Tol, 2016. "The Impacts Of Climate Change According To The Ipcc," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-20, February.
    9. 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.
    10. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    11. Havranek, Tomas & Irsova, Zuzana & Janda, Karel & Zilberman, David, 2015. "Selective reporting and the social cost of carbon," Energy Economics, Elsevier, vol. 51(C), pages 394-406.
    12. Tol, Richard S.J., 2019. "A social cost of carbon for (almost) every country," Energy Economics, Elsevier, vol. 83(C), pages 555-566.
    13. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    14. Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    15. Changxin Liu & Hailing Zhang & Zheng Wang, 2019. "Study on the Functional Improvement of Economic Damage Assessment for the Integrated Assessment Model," Sustainability, MDPI, vol. 11(5), pages 1-18, February.
    16. William Nordhaus, 2018. "Evolution of modeling of the economics of global warming: changes in the DICE model, 1992–2017," Climatic Change, Springer, vol. 148(4), pages 623-640, June.
    17. Lamperti, F. & Dosi, G. & Napoletano, M. & Roventini, A. & Sapio, A., 2018. "Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model," Ecological Economics, Elsevier, vol. 150(C), pages 315-339.
    18. McGrath, Luke & Hynes, Stephen & McHale, John, 2019. "Augmenting the World Bank's estimates: Ireland's genuine savings through boom and bust," Ecological Economics, Elsevier, vol. 165(C), pages 1-1.
    19. Elizabeth Kopits & Alex L. Marten & Ann Wolverton, 2013. "Moving Forward with Incorporating "Catastrophic" Climate Change into Policy Analysis," NCEE Working Paper Series 201301, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jan 2013.
    20. Davidson, Marc D., 2014. "Zero discounting can compensate future generations for climate damage," Ecological Economics, Elsevier, vol. 105(C), pages 40-47.

    More about this item

    Keywords

    Environmental Economics and Policy; Research Methods/ Statistical Methods; Risk and Uncertainty;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:ags:aaea14:169952. 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: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.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.