Climate Change Policy: What Do the Models Tell Us?

TLDR

Integrated assessment models (IAMs) are widely used to estimate the social cost of carbon and evaluate abatement policies. IAMs rely on arbitrary inputs, ad hoc climate impact descriptions, and cannot assess catastrophic outcomes, making them misleadingly precise for policy analysis. JEL codes: C51, Q54, Q58.

Abstract

Very little. A plethora of integrated assessment models (IAMs) have been constructed and used to estimate the social cost of carbon (SCC) and evaluate alternative abatement policies. These models have crucial flaws that make them close to useless as tools for policy analysis: certain inputs (e.g., the discount rate) are arbitrary, but have huge effects on the SCC estimates the models produce; the models' descriptions of the impact of climate change are completely ad hoc, with no theoretical or empirical foundation; and the models can tell us nothing about the most important driver of the SCC, the possibility of a catastrophic climate outcome. IAM-based analyses of climate policy create a perception of knowledge and precision, but that perception is illusory and misleading. (JEL C51, Q54, Q58)