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Modeling Climate Policies: A Critical Look at Integrated Assessment Models

Abstract

Climate change presents us with a problem of intergenerational justice. While any costs associated with climate change mitigation measures will have to be borne by the world’s present generation, the main beneficiaries of mitigation measures will be future generations. This raises the question to what extent present generations have a responsibility to shoulder these costs. One influential approach for addressing this question is to appeal to neo-classical economic cost–benefit analyses and so-called economy-climate “integrated assessment models” to determine what course of action a principle of intergenerational welfare maximization would require of us. I critically examine a range of problems for this approach. First, integrated assessment models face a problem of underdetermination and induction: They are very sensitive to a number of highly conjectural assumptions about economic responses to a temperature and climate regime, for which we have no empirical evidence. Second, they involve several simplifying assumptions which cannot be justified empirically. And third, some of the assumptions underlying the construction of economic models are intrinsically normative assumptions that reflect value judgments of the modeler. I conclude that, while integrated assessment models may play a useful role as “toy models,” their use as tools for policy optimization is highly problematic.

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Notes

  1. More recently, however, Posner has expressed doubts about the appropriateness of a cost–benefit approach to climate policies, for reasons similar to the ones discussed below (see Masur et al. 2011).

  2. See (Kelly and Kolstad 2000) for a survey of different models.

  3. See (Dietz 2012) for a critical discussion of the interagency working group’s use of IAMs. It also appears that the United States response to the Kyoto negotiations and the treaty both during the Clinton and Bush (II) administrations was influenced by the predictions of optimization IAMs (deCanio 2003, 4; Spash 2002).

  4. Dale Jamieson goes further in developing this value-dependence than I shall do here (Jamieson 1992, reprinted in Gardiner et al. 2010): “Science has alerted us to the impact of humankind on the planet, one another, and all life. This dramatically confronts us with questions about who we are, our relations to nature, and what we are willing to sacrifice for various possible futures. We should confront this as a fundamental challenge to our values and not treat it as if it were simply another technical problem to be managed.” (Gardiner et al. 2010, 85)

  5. Examples include IMAGE, MESSAGE, or GCAM.

  6. The researchers of the Stern Review themselves seem to be keenly aware of the limitations of their own analysis. See, for example, Dietz et al. (2007). Critical examinations of IAMs in the economics literature, from which I have benefited, include DeCanio (2003), Spash (2002), and Ackerman et al. (2009). Gardiner (2011) contains a philosophical critique of cost–benefit analyses. See also Steel (2013).

  7. Jamieson reaches similar conclusions in his criticism of neo-classical economic approaches to climate policy: “A greenhouse warming, if it occurs, will have impacts that are so broad, diverse, and uncertain that conventional economic analysis is practically useless.” (Gardiner et al. 2010, 80)

  8. That is, the difference between current (2012) CO2 concentrations and the maximum of the pre-industrial range of concentrations is as large as the entire pre-industrial range.

  9. Nordhaus own analysis implies that the uncertainties in his model are considerable: under the “optimal” emissions trajectory the temperature increase by 2150 will, with 68 % probability, be somewhere between 2.5 °C and 6 °C, which some might consider to be a sub-optimal outlook.

  10. Even though this principle is far from unproblematic. As James Joyce has argued, the principle of indifference commits us to very precise beliefs, “even when the evidence comes nowhere close to warranting such beliefs.” (Joyce 2010) See also “Section six” below.

  11. See Weitzman (2009) for a discussion of the problems resulting from fat-tailed distributions for choosing a climate policy.

  12. See Interagency Working Group on Social Cost of Carbon (2010, Figure 1A and B). That the PAGE model’s predictions lie somewhere in between those of DICE and FUND is no accident: Its damages are calibrated against four different estimates of impacts cited in the third IPCC report (see Hope 2006), two of which were conducted by Nordhaus and Tol, respectively.

  13. They clarify: “This likely overestimates what could practically be tolerated: Our limit applies to a person out of the sun, in gale-force winds, doused with water, wearing no clothing, and not working. A global-mean warming of only 3–4 °C would in some locations halve the margin of safety that now leaves room for additional burdens or limitations to cooling.”

  14. The Fund model is only calculated up to a temperature of 8 °C increase in global temperatures. Here the DICE and PAGE models predict “only” damages amounting to roughly 15 % global GDP while the FUND model predicts damages of roughly 6 % GDP (see Interagency Working Group on Social Cost of Carbon 2010, 10).

  15. “Economic welfare should include everything that is of value to people, even if those things are not included in the market place.” (Nordhaus 2008, 13)

  16. Clive Spash criticizes optimization IAMs precisely for that reason: GDP cannot be used as a measure of welfare, he argues, “because it ignores non-monetary welfare (e.g., ecosystems functions, biodiversity, aesthetics) and informal economic activity (e.g., housework, or the 'black' economy), is boosted by disasters (e.g., cleanup of oil spills), and is generally concerned with material throughput rather than quality of life.” (Spash 2002)

  17. See also Neumayer (2007).

  18. “The point is that there can be as many indices of sustainability as there are normative definitions of what we want to sustain. In standard national accounting practice, the normative issue of defining preferences is generally avoided through the assumption that observed prices reveal the true preferences of people. No explicit normative choice is therefore to be made by the statistician. But, as soon as we recognize that market prices cannot be trusted, alternative imputed prices must be computed, whose values will strongly depend upon normative choices.” (Stiglitz et al 2010)

  19. For a derivation of the Ramsey equation in a simple model, see Stern (2007, 46)

  20. See Broome (1993), Price (1993), and Gardiner (2011, ch. 8) for detailed critical examinations of future discounting.

  21. It is unclear why our risk aversion should be so tightly wedded to the diminishing marginal utility as implied by the use of a single parameter η. In principle, different combinations of our attitude toward risk and of the utility of marginal increases in consumption seem possible.

  22. The hedge fund manager Jeremy Grantham warns in a recent Op-Ed piece in Nature: “This is not only the crisis of your lives—it is also the crisis of our species’ existence.” (Nature 491, 303 (15 November 2012))

  23. Thus, I disagree with Jamieson’s claim that “our inability to perform reliably the economic calculations also counts against the ‘insurance’ view favored by many ‘hawks’.” (Gardiner et al. 2010, 80) If our aim is to find strategies that are robust across a wide range of scenarios, we do not need to be able epistemically to reduce our deep uncertainty. Of course, we might be unlucky even if we adopted an extremely cautious policy. But that possibility does not speak against the legitimacy of the approach.

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Acknowledgments

The research for this paper has been supported by the Alexander-von-Humboldt Foundation.

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Correspondence to Mathias Frisch.

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Frisch, M. Modeling Climate Policies: A Critical Look at Integrated Assessment Models. Philos. Technol. 26, 117–137 (2013). https://doi.org/10.1007/s13347-013-0099-6

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Keywords

  • Climate change
  • Economics
  • Models
  • Cost–benefit analysis
  • Future discounting