LiU researchers severely critical of economics prize-winner

A catastrophe for work with climate. The macroeconomic models that William Nordhaus, one of this year’s prize-winners in economics, has developed have drawn severe criticism from researchers. 

Environmental degradation in coal-fired power station in Belchatow, Poland Photo credit ewg3DLiU researchers Anders Hansson and Simon Haikola at the Centre for Climate Science and Policy Research are two of the Swedish critics of William Nordhaus’ conclusions. One of the places they express their criticism is an opinion piece in the Swedish national daily Svenska Dagbladet, which has now in turn been questioned in a debate article in the other Swedish national daily, DN. The discussion is set to continue.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2018 was awarded to William Nordhaus, together with Paul Romer. Nordhaus received the prize in recognition of his pioneering work in the 1970s, “integrating climate change into long-run macroeconomic analysis”. One of the macroeconomic models he developed is the dynamic integrated climate-economy model (or “the DICE model”).

LiU researchers Anders Hansson (from the Department of Thematic Studies – Environmental Change) and Simon Haikola (from the Department of Thematic Studies – Technology and Social Change) are far from alone in their criticism of William Nordhaus’ calculations. These have for many years been doubted not only by world-leading economists, but also by climate scientists.

William Nordhaus, ekonomipristagare 2018Why is William Nordhaus so controversial?
“One reason is his calculation of the optimal breakpoint between the costs of climate-change mitigation and the costs of the damage caused by climate change. According to his calculations, carbon dioxide levels can be allowed to continue to rise, and he believes that the world can globally cope with a temperature increase of 3-3.5 degrees above the preindustrial level,” says Simon Haikola.

“Nordhaus’ models assume that environmental changes will occur linearly. And it’s not that simple. Climate research has shown without doubt that there is a risk of self-generating effects on the climate that we cannot predict.”

William Nordhaus’ limit of 3.5 degrees is significantly higher than the target of a maximum of 2 degrees set by the 2015 United Nations Climate Change Conference in Paris. In preparation for the current COP24 climate change conference in Poland, researchers published a report from the Intergovernmental Panel on Climate Change (IPCC) describing how large the consequences of climate change will be following an increase of a half degree, from 1.5 to 2 degrees. And many researchers are warning that we will pass unpredictable tipping points if that limit is exceeded.
“They are completely unanimous that that we will not be able to cope with a temperature rise greater than 3 degrees”, says Simon Haikola.

Simon Haikola, porträtt Photo credit David EinarWilliam Nordhaus’s work has been criticised for several reasons.
One point is that he displaces the costs for climate-associated damage into the future, and places a higher value on carbon-based growth than alternative indicators of well-being. Nordhaus believes that expensive climate-change mitigation will damage the global economy.

“He depends on a relatively untroubled market making us richer, and making it possible to afford extensive climate-change mitigation in the future”, says Simon Haikola.

This is a controversial suggestion.
Further, William Nordhaus writes off the cost of future damage caused by climate change simply because it occurs in the future.
The question is who is to suffer the major blows. For the wealthy parts of the world, increased costs for climate-change mitigation mean something completely different than they do for the poor parts. His critics point out that his ideas do not incorporate ideas of global justice to any serious degree.

“It’s interesting that Nordhaus’ theories create polarisation in a question where science recommends without any shadow of doubt that the temperature rise be limited to 1.5-2 degrees. It’s also interesting to see so many people rushing to his defence”, says Anders Hansson.

Anders Hansson, Tema M, porträtt Photo credit David EinarDavid EinarWell, actually, it’s more than just interesting.
William Nordhaus’ ideas have had a huge influence on climate-management policy since he presented his climate model in 1975. And it is serious that many people have since then questioned whether radical transition, such as to a fossil-fuel free world, is needed or not.

“Nordhaus was initially seen as recommending climate-change mitigation. He thought, for example, that a carbon dioxide tax could be a way to solve emission problems, encouraging industry to invest in innovation and technical development”, says Anders Hansson.
“And a tax on carbon dioxide emissions is not in itself a bad thing. However, compared with the proposals from the IPCC, the tax levels he suggests are remarkably low. Too low a price will not lead to any change: it’s most probable that companies will instead choose to pay for their emissions.”
Further, all action to meet the threat of climate change is entered as expenses in the Nordhaus models.
“But investment into new fields that provide jobs, or the development of technology that will bring a payback in the future, are not considered by Nordhaus in the cost-benefit analysis. This is a serious weakness”, says Anders Hansson.

There is a risk associated with William Nordhaus now receiving greater attention following the award of what is often called the “Nobel Prize in Economics”.
Many of the world-leading researchers who criticise his theories claim that they are coloured by Nordhaus’ ideology, and arise from political grounds. If you start with different figures in his analysis models, you get completely different results.

“The prize in economics increases William Nordhaus’ legitimacy and gives him priority when interpreting the results. Many will believe that his conclusions have been scientifically proven. And this is attractive, particularly since his message is that we can postpone taking measures”, says Anders Hansson.

Climate-change economics has severe deficiencies. The LiU researchers point out that there is nothing wrong with researchers basing their ideas on an ideological foundation – but it does become a problem when they don’t admit it.

Following the recommendations put forward by William Nordhaus – that the best way to meet the climate threat is to do essentially nothing – conflicts with everything that climate science stands for. And his recommendations will have catastrophic effects for the climate.
“Alfred Nobel wrote in his will that the Nobel Prize is to be awarded to those who have ‘conferred the greatest benefit to humankind’. In the case of William Nordhaus, we are many who question whether his interpretation of his models truly has benefited humankind”, says Anders Hansson.

The opinion piece in Svenska Dagbladet, 25 November (in Swedish)

Photos: Bengt Nyman/Wikipedia (William Nordhaus); iStock (coal mining in Poland)

Translated by George Farrants

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