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Are economists getting climate dynamics right and does it matter?

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  • Dietz, Simon
  • van der Ploeg, Frederick
  • Rezai, Armon
  • Venmans, Frank

Abstract

We show that economic models of climate change produce climate dynamics inconsistent with current climate science models: (i) the delay between CO 2 emissions and warming is much too long and (ii) positive carbon cycle feedbacks are mostly absent. These inconsistencies lead to biased economic policy advice. Controlling for how the economy is represented, different climate models result in significantly different optimal CO 2 emissions. A long delay between emissions and warming leads to optimal carbon prices that are too low and attaches too much importance to the discount rate. Similarly we find that omitting positive carbon cycle feedbacks leads to optimal carbon prices that are too low. We conclude that it is important for policy purposes to bring economic models in line with the state of the art in climate science, and we make practical suggestions for how to do so.

Suggested Citation

  • Dietz, Simon & van der Ploeg, Frederick & Rezai, Armon & Venmans, Frank, 2021. "Are economists getting climate dynamics right and does it matter?," LSE Research Online Documents on Economics 108887, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:108887
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    More about this item

    Keywords

    carbon cycle; carbon price; climate change; integrated assessment modelling; positive feedbacks; social cost of carbon;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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