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Evaluation of the DICE climate-economy integrated assessment

Greaves, Gerry (2015): Evaluation of the DICE climate-economy integrated assessment.

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Abstract

Climate-economy integrated assessment models are often used to assess the interaction between climate change effects and the economy. A simple but powerful model, DICE (Dynamic Integrated Climate-Economy) model, was developed at Yale. This is an easily accessible model that allows exploration of various parameters that affect long-term (years 2000-2300) climate change. The global economic model estimates the future growth of economic output tempered by abatement costs and climate change damages. It uses an optimization scheme to determine the CO2eq price over time that maximizes discounted utility of consumption. However, there are a few areas that may be improved.

This paper addresses those areas. First, a model of renewable energy that explicitly accounts for the capital required for the transition is added. This has the effect of smoothing the beginning of the transition, and shows that we can afford the transition. Second, a modified damage function is used that shows a greater penalty for business as usual. Third, the growth model used in DICE results in a level of economic growth too high to be supported by historical data. A modified growth model is proposed based primarily on historical data from the Penn World Table that results in lower growth and a more rapid decline in growth rate.

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