A Nobel way to save the planet?

Climate change is increasingly in the news. While people behind the science are often left out of meaningful coverage, this year’s Nobel winner has surely made a contribution worthy of attention outside the scientific community. The solutions he suggests for tackling climate change, however, are more questionable than they may look.

William Nordhaus, an established economist at Yale University, is a highly cited scholar on climate change economics and policy. In many ways his ideas pioneered what is now taken for granted in economic assessments of climate change.

Most of the researcher’s efforts during his career have been focused around a single theme: how economies can help us deal with climate change. According to Nordhaus, for this we need to have robust estimations of risks and benefits of climate change. In this context he has developed assessment models allowing us to economically measure the social and natural outcomes of climate change across different scales and contexts. 

Nordhaus has also invented the “social cost of carbon” concept, which the researcher himself calls the most important concept in the economics of climate change as it represents “the economic cost caused by an additional ton of carbon dioxide emissions or its equivalent.” The concept is now widely used within regulatory climate frameworks dealing with emissions cuts.

An idea based on these insights has been on the shelf for years: implementing an actionable carbon tax as a significant charge for burning fossil fuels like coal and oil. The tax would make users of the fuels pay a real price for the environmental damage they cause with the ultimate goal of pricing fossils out of the market and replacing them with clean and renewable energy. This idea has been endorsed in a recent roadmap for accelerating action on climate change. As Martin Weitzman, a Harvard University researcher noted, a carbon price would act as “a ‘countervailing force’ against narrow self interest by automatically incentivizing all negotiating parties to internalize the externality.” 

Though innovative and forward-looking, researcher’s ideas are not widely shared among many policymakers and economists. Carbon taxation still leaves many issues to be resolved. For instance: What are the optimal and minimum prices per ton of carbon emitted? How to support effective transitions from carbon-intensive jobs without increasing unemployment?

Nordhaus’s models have also been criticized by more heterodox ecological economists like Clive Spash for reducing everything that matters to numbers, neglecting important ethical considerations and supporting the delay of necessary action due to the application of positive discounting rates embedded in the system. Clive Hamilton, another climate policy advocate, has called the carbon tax proposal “unfair and unworkable”.

Even if a carbon tax could be implemented, it is hardly possible that the rate would represent the real cost of climate change, considering that discount rates, according to Nordhaus, should be determined by the markets, which are very bad at capturing the diversity of climate impacts.

While critics may sound convincing, it is hard to argue against the contribution Nordhaus has made to bringing climate change issues to the forefront of international politics and economic thinking. His major books on the issue include Managing the Global Commons: The Economics of Climate Change (1994) and the recent The Climate Casino: Risk, Uncertainty, and Economics for a Warming World (2013), summarizing most of his ideas on the economics of climate change. Turning 78 this year, Nordhaus has so far published over 600 articles, and he continues to actively promote innovative economic policies to help deal with climate change.

All things considered, it is more important than ever to both acknowledge every contribution to climate science and politics, and at the same time to stay critical about the methods we plan to use and the directions we choose based on the limitations of our knowledge. And while celebrating how someone’s writing and research might help to deal with climate change, it is always best to start acting on our own to make real change happen in front of our eyes in our own lives.