There are different types of Integrated Assessment Models (IAMs). In the climate world, we usually differentiate two. One type looks at cost-benefit analysis of climate impacts, such as, DICE, FUND, PAGE. Another type looks at cost-effective energy system transformations to stay below a given temperature level, such as, GCAM, IMAGE, MESSAGE, REMIND, and many more.

The models focussing on cost-benefit analysis often look at the social cost of carbon, and because of their relative simplicity, they do rather comprehensive uncertainty analyses.

The models focussing on energy system transformations, the ones that most interest me, focus on multiple scenarios and technological detail. I often see very little sensitivity analysis from these models, or at least I can’t find it!

I recently came across a blogpost by William Nordhaus, looking at cost-benefit and cost-effective analysis. For those that don’t know Nordhaus, he is a pioneer on the economics of climate change.

These days, climate scientists think they are cool when they are working on 1.5°C or geoengineering. Well, Nordhaus had that research done-and-dusted when today’s climate scientists were in nappies, me included. (Ok, I exaggerate, but I was probably still in nappies when Nordhaus started working in this area).

The blogpost gives a nice summary of the different types of models and there uses, but I was immediately drawn to the results.

I am sure people don’t like DICE and don’t like models, but I don’t care! I am interested in processes here, not exact numbers.

Nordhaus compares several scenarios:

• Baseline: No climate-change policies are adopted
• Optimal: Climate-change policies maximize economic welfare, with full participation by all nations starting in 2020
• Temperature-limited: The optimal policies are undertaken subject to a further constraint that global temperature does not exceed 2.5°C above the 1900 average. (The international goal of 2°C is not feasible with current DICE estimates without technologies that allow negative emissions by mid-21st century).
• Stern discounting: These are results associated with an extremely low discount rate as advocated by The Stern Review on the Economics of Climate Change.

Here I want to discuss the three figures, and their key results.