An Economic Case for the UN Climate Targets: Early and strong climate action pays off
Climate action is not cheap – but climate damages aren’t, either. So what level of climate action is best, economically speaking? This question has puzzled economists for decades, and in particular, since the 2018 Nobel Prize in Economics went to William Nordhaus, who found 3.5 degrees of warming by 2100 might be an economically desirable outcome. An international team of scientists led by the Potsdam Institute has now updated the computer simulation model used to come to this conclusion with the latest data and insights from both climate science and economics. They found that limiting global warming to below 2 degrees strikes an economically optimal balance between future climate damages and today’s climate mitigation costs. This would require a price of CO2 of more than 100 US Dollars per ton.
The day the Intergovernmental Panel on Climate Change (IPCC) published its 1.5-degree report, commissioned by the UN, was also the day William Nordhaus was awarded the Nobel Prize in Economics “for integrating climate change into long-run macroeconomic analysis” as embodied in his influential Dynamic Integrated Climate-Economy (DICE) model. The UN Paris Agreement called to limit global warming to well below 2 degrees to contain climate risks. Nordhaus’s numbers point to 3.5 degrees as the economically optimal warming by the year 2100. Now a new study published in Nature Climate Change has produced an update to the DICE model that can help to reconcile the camps.