The Nobel Prize for Climate Catastrophe
Many people were thrilled when they heard that the Nobel Memorial Prize in Economics this year went to William Nordhaus of Yale University, a man known for his work on climate change. Finally, the economics profession is giving climate the attention it deserves, just as the world is waking up to the severity of our ecological emergency. Media outlets have taken this positive narrative and run with it.
But while Nordhaus may be revered among economists, climate scientists and ecologists have a very different opinion of his legacy. In fact, many believe that the failure of the world’s governments to pursue aggressive climate action over the past few decades is in large part due to arguments that Nordhaus has advanced.
It’s a blazing controversy that hinges on the single most consequential issue in climate economics: the question of growth. The stakes couldn’t be higher. After all, this isn’t just a matter of abstract academic debate; the future of human civilization hangs in the balance. ——————————
In the 1990s, Nordhaus invented the first integrated assessment models to explore how economic growth affects carbon emissions, and how climate change in turn affects economic growth. The basic mechanisms that Nordhaus described continue to inform the models that the Intergovernmental Panel on Climate Change (IPCC) uses today. No one disputes that this qualifies as a significant contribution to the field. The question, rather, has to do with how Nordhaus has used his models to argue for a particular policy agenda.
The models showed that if we were to rapidly reduce carbon emissions in line with what scientists say is necessary to avoid climate breakdown – by putting a high tax on carbon, for instance – it would significantly slow down the rate of economic growth. As far as scientists are concerned, that’s not a problem; we should obviously do whatever it takes to avoid climate catastrophe. But for economists like Nordhaus, this is not acceptable. After all, the whole point of neoclassical economics is to do whatever it takes to grow economic output.
So, Nordhaus’ career has been devoted to finding what he calls a “balance” between climate mitigation and GDP growth. In a famous 1991 paper
To justify this conclusion, Nordhaus manipulates what is known as the “discount rate,” which is how economists value the costs of climate breakdown in the present as compared to the future. It might sound arcane, but it’s really quite straightforward. A discount rate of zero means that future generations are valued equally to the present; a *high* discount rate means that future generations are valued less, or “discounted,” compared with nearer generations.
Nordhaus prefers a high discount rate—very high. Discounting the future allows him to argue that we shouldn’t reduce emissions too quickly, because the economic cost to people today will be higher than the benefit of protecting people in the future. Instead, we should do the opposite: Focus on GDP growth now even if it means locking in future climate catastrophe. This is justifiable, he says, because future generations will then be much richer than we are and therefore better able to manage the problem.
Using this logic, Nordhaus long claimed that from the standpoint of “economic rationality” it is “optimal” to keep warming the planet to about 3.5 degrees Celsius over preindustrial levels—vastly in excess of the 1.5 degrees Celsius threshold that the IPCC insists on.
It sounds morally problematic and flies in the face of scientists’ warnings, but economists and policymakers have lined up behind Nordhaus’s argument. They like it because it gives them license to carry on with the status quo and delay difficult decisions. President Trump, for instance, has been aggressive in his preference for growth over climate action. This is in large part what explains the fact that nearly 30 years after the first IPCC report was published, global emissions are still going up. It also helps explain why even with the Paris climate agreement in place, and with all of the plans promised by the world’s governments, we’re still headed for about 3.3 degrees Celsius
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