With his Nobel Prize-winning climate model, William Nordhaus showed that a net-zero policy would be worse for human welfare than doing nothing at all.
The economist William Nordhaus died on October 30. In 2018, Nordhaus won the Nobel Prize in Economics for developing an economic model of climate change. For decades before then, he was an early advocate of addressing climate change through a global “carbon tax.” He was championed by climate activists for taking this stand, but ironically, his prize-winning research led serious policymakers to reject their maximalist approach to slashing emissions.
By aggregating other economists’ studies, Nordhaus estimated that the most probable paths of emissions would likely damage the world economy by a few percentage points of GDP by 2100, rising with each degree of global warming. That would amount to many trillions of dollars each year, giving activists ammunition to push for hugely expensive policies today.
Yet Nordhaus simultaneously modeled the economic costs of the policies necessary to mitigate climate change — and those were enormous as well. As it turned out, eliminating so many emission-producing activities as to reduce global warming to 2 degrees Celsius would cost tens of trillions of dollars more than allowing emissions to continue unrestricted. After incorporating more realistic policy costs, as most interventions are far from economically ideal, the projected cost of forcing temperature growth down to 2 degrees was more than twice as high as unmitigated emissions leading to 4 degrees of warming — $350 trillion versus less than $150 trillion by 2100.
By comparing the costs of global warming to the higher costs of mitigation, Nordhaus settled on an “optimal” amount of warming: 3.5 degrees of warming under ideal conditions, or 3.75 degrees under realistic ones. Such a path would allow global emissions to rise for decades into the future before falling gradually, reducing temperatures by no more than 0.5 degrees from the baseline. To achieve this, he recommended a modest carbon tax rising from under $50 to less than $100 per ton. An alternative path of net-zero emissions would instead require a tax of several hundred dollars per ton.
Crucially, for the carbon tax to work, it would need to be imposed uniformly across the entire world. If just one country tried to mitigate emissions unilaterally, it would bear all the costs while producing minimal climate benefits for the world. Using models similar to Nordhaus’s, policy analysts estimate that eliminating all U.S. emissions would make temperatures in 2100 only a fraction of a degree lower. Eliminating emissions from all industrialized countries wouldn’t fare much better.
In an ideal world, it might make sense for countries to unite around Nordhaus’s 3.5-degree goal. In the real world, however, his model at once showed the futility of individual nations targeting emissions and the relative acceptability of likely warming. In fact, no further intervention may be necessary: Under current policies and trends, global warming by 2100 is now projected at 2.6 degrees relative to pre-industrial levels, or 2.9 degrees on the high end. Under Nordhaus’s model, that may shave 2–3 points off world GDP by 2100, or about a single year’s worth of economic growth.
Nordhaus may be remembered by the left as a carbon taxer, but his true contribution was bringing rigorous cost-benefit analysis to a policy field that was sorely lacking it. In doing so, he showed that a net-zero policy failed the assessment worse than doing nothing at all, and that tolerating a good deal of global warming would be better in the long run for human welfare than overreacting today.
Dead at 85. R.I.P.