Evolution of modeling of the economics of global warming: changes in the DICE model, 1992–2017

Abstract

Many areas of the natural and social sciences involve complex systems that link together multiple sectors. Integrated assessment models (IAMs) are approaches that integrate knowledge from two or more domains into a single framework, and these are particularly important for climate change. One of the earliest IAMs for climate change was the DICE/RICE family of models, first published in Nordhaus (Science 258:1315–1319, 1992a), with the latest version in Nordhaus (2017, 2018). A difficulty in assessing IAMs is the inability to use standard statistical tests because of the lack of a probabilistic structure. In the absence of statistical tests, the present study examines the extent of revisions of the DICE model over its quarter-century history. The study finds that the major revisions have come primarily from the economic aspects of the model, whereas the environmental changes have been much smaller. Particularly, sharp revisions have occurred for global output, damages, and the social cost of carbon. These results indicate that the economic projections are the least precise parts of IAMs and deserve much greater study than has been the case up to now, especially careful studies of long-run economic growth (to 2100 and beyond). Additionally, the approach developed here can serve as a useful template for IAMs to describe their salient characteristics and revisions for the broader community of analysts.

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Notes

  1. 1.

    The “1” indicates that it is a one-region model; the “2” indicates that it is the second major version; and the “3” indicates that it uses the third-round estimate of the data. Documentation for this version is contained in Nordhaus (1992b).

  2. 2.

    It will be instructive to indicate that the task of converting models is not always trivial. The earlier model was in 1989 US dollars at market exchange rates, while the latest model was in 2010 US international dollars. If we look at the US price index for GDP, the ratio of 2010 to 1989 prices is 1.57. However, this is not representative of the world because of the changing composition of output and growth rates of different countries. If we take the ratio of real to nominal GDP for the IMF data for market exchange rates, the ratio is 1.52 for 1985 (the last year with actual data for the 1992 model). The IMF’s calculation of the global price-level change from 1989 to 2010 is 2.02 for the PPP concept and 1.70 for the MER concept. We have taken a reflator of 2.0 to represent the PPP concept. This adjustment is only important for the first step in the process (v6). For the second step, which adjusts to 2015 levels of output, the reflator becomes irrelevant.

  3. 3.

    The change in the utility function involved both a change in the rate of time preference and a change in the elasticity of the marginal utility of consumption. These affect the real return and the impact of changes in productivity growth on different variables.

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Funding

The research reported here was supported by the US National Science Foundation Award GEO-1240507 and the US Department of Energy Award DE-SC0005171-001.

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Correspondence to William Nordhaus.

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Nordhaus, W. Evolution of modeling of the economics of global warming: changes in the DICE model, 1992–2017. Climatic Change 148, 623–640 (2018). https://doi.org/10.1007/s10584-018-2218-y

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JEL classification

  • Q5
  • Q54
  • H4