Benjamin Zycher, American Enterprise Institute
Having received the 2018 Nobel Prize in economics largely in recognition of his economic analysis of climate policy—in particular the development and application of the Dynamic Integrated Climate-Economy (DICE) model—William D. Nordhaus now is under attack from the environmental left.
This emerging criticism of Nordhaus’ analytic framework is curious at a minimum. After all, is it not more study and analysis—more “science”—that the proponents of the “crisis” view of climate policy seek? The short answer to that question: decidedly not. Nordhaus’ work is careful and detailed. Like any serious body of analysis, it raises more questions than it answers—there is good reason, for example, to question several of the underlying assumptions—and DICE can be criticized on several fronts. The same is true for Nordhaus’ policy argument in favor of a carbon tax or other such pricing policies, a policy prescription much more questionable than often asserted. But Nordhaus’ absolute honesty and rigorous approach to economic analysis are beyond reproach, which is one general reason that he now is under attack even though he favors such policies as the Paris agreement to reduce greenhouse gas (GHG) emissions, with tariffs to be imposed on nations not participating.
For reasons summarized below, Nordhaus’ argument for an international “climate club” enforcing the Paris agreement is unlikely to prove workable. But that is not the central issue here. Instead, Nordhaus—by no stretch of the imagination a climate policy skeptic—is under attack more centrally because DICE has not provided answers consistent with the ideological demands of the climate alarmists, and Nordhaus has refused to bend to the political winds. In the DICE model under a wide range of reasonable assumptions, and even under many not plausible, climate policy cannot satisfy a benefit/cost test, and the same is true for the other two major integrated assessment models.