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Macro and Climate Economics: It’s Time to Talk About the ‘Elephant in the Room’

September 17, 2016

MACRO AND CLIMATE ECONOMICS: IT’S TIME TO TALK ABOUT THE “ELEPHANT IN THE ROOM”

Editor’s note: This is the first of a two-part series by the author. Up next: “The most important and misleading assumption in the world.“

If we want to maximize our ability to achieve future energy, climate, and economic goals, we must start to use improved economic modeling concepts.  There is a very real tradeoff of the rate at which we address climate change and the amount of economic growth we experience during the transition to a low-carbon economy.

If we ignore this tradeoff, as do most of the economic models, then we risk politicians and citizens revolting against the energy transition midway through.

On September 3, 2016, President Obama and Chinese President Xi Jinping each joined the Paris Climate Change Agreement to support U.S. and Chinese efforts to greenhouse gas emissions (GHGs) limits for their respective country. This is an important signal to the world that the presidents of the two largest economies and GHG emitters are cooperating on a truly global environmental matter, and it provides two leaps toward obtaining enough global commitments to set the Paris Agreement in motion.

The economic outcomes from models used to inform policymakers like Presidents Obama and Xi, however, are so fundamentally flawed that they are delusional.

The projections for climate and economy interactions during a transition to low-carbon economy are performed using Integrated Assessment Models (IAMs) that link earth systems models to human activities via economic models. Several of these IAMs inform the Intergovernmental Panel on Climate Change (IPCC), and the IPCC reports in turn inform policy makers.

The earth systems part of the IAMs project changes to climate from increased concentration of greenhouse gases in the atmosphere, land use changes, and other biophysical factors.  The economic part of the IAMs characterizes human responses to the climate and the changes in energy technologies that are needed to limit global GHG emissions.

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Olduvai IV: Courage
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Olduvai II: Exodus
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