The Ecology Book

325

See also: Renewable energy 300–305 ■ Man and the Biosphere Programme

310–311 ■ Halting climate change 316–321

ENVIRONMENTALISM AND CONSERVATION

These damages include reductions

in agricultural productivity, harm to

infrastructure, energy costs, and

impacts on human health. The SCC

provides a starting point for energy

policy. For example, if the SCC is

factored into proposals for a new

power plant, the cost of building it

becomes much higher. This may

also make the cost of alternative

forms of energy—such as solar or

wind power—more financially

viable. However, it is extremely

difficult to calculate the SCC.

Forecast models

Economists use several models in

order to calculate the SCC. In 1999,

William Nordhaus developed RICE

(Regional Integrated Climate-

Economy model)—a variant of his

own preceding DICE (Dynamic

Integrated Climate-Economy model),

which weighed the costs and

benefits of slowing down global

warming. The RICE model

integrates carbon emissions, carbon

concentrations in the atmosphere,

climate change, damages, and

controls that are in place to reduce

emissions. The model divides the

world into distinct regions for its

analysis. It predicts that the

combined SCC in 2055 will be

between $40–$188 per ton ($44 and

$207 per tonne) of carbon dioxide

released, depending on the rate of

warming and the mitigation

policies enacted.

Economic models incorporate

assumptions, such as the discount

rate. Discount rates prioritize the

present over the future, because the

future cannot be predicted perfectly.

The rate is selected based on how

the balance between present and

future priorities is weighted. Higher

discount rates indicate that future

populations will be wealthier, and

prepared to deal with climate

change. Lower discount rates

suggest that the disruption caused

by climate change will make people

in the future poorer than we are

today. Nordhaus suggests a 3

percent discount rate, meaning that

if the monetary damages from

climate change will be $5 trillion in

the year 2100, we could invest $382

billion today to avoid it. ■

The cost of reducing

CO 2 increases in line

with the quantity, but

this is offset by the

benefits gained. The

lines intersect at the

point of equilibrium,

where maximum

benefits are achieved

at the lowest cost.

Analyzing the costs of reducing carbon dioxide

William Nordhaus

Born in New Mexico in 1941,

Nordhaus is a leader in the

field of the economics of

climate change. He stumbled

upon this field of research

through sharing an office with

a climatologist. Nordhaus’s

economic theories—the

DICE and RICE models—are

widely used to analyze policy

decisions. Nordhaus is

principally concerned with

placing a realistic price on

carbon. Today, the social cost

of carbon is generally agreed

to be around $40 per ton, but

Nordhaus’s models show that

it should be higher to account

for the impacts of climate

change. Nordhaus is Sterling

Professor of Economics at Yale

University, and serves on the

Congressional Budget Office

Panel of Economic Experts

and the Brooking Panel on

Economic Activity. In 2018,

Noordhaus was awarded the

Nobel Prize in economics.

Key works

1994 Managing the Global

Commons: The Economics

of Climate Change

2000 Warming the World:

Economic Models of Global

Warming

THE COST OF REDUCING CO

2

QUANTITY OF C0 2

Marginal

benefits

Financial

cost

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