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Evolution of Modeling of the Economics of Global Warming: Changes in the DICE Model, 1992–2017
Published: May 17, 2018
Posted: August 27, 2019

Economic projections are the least precise parts of Integrated Assessment Models and deserve much greater study than has been the case up to now, especially careful studies of long-run economic growth.

The Science
Many areas of the natural and social sciences involve complex systems that link together multiple physical or economic sectors. In this role, integrated assessment analysis and models play a key role. Integrated assessment models (IAMs) can be defined as approaches that integrate knowledge from two or more domains into a single framework. One of the major shortcomings of IAMs is that their structure makes it extremely difficult to use standard econometric techniques to assess their reliability—a feature that is shared with Earth system models and other large simulation models.

The Impact
In the absence of statistical tests, the present study examines the extent and area of revisions of the Dynamic Integrated Climate-Economy (DICE) model from its earliest publication in 1992 to its latest version published in 2017 and 2018. This retrospective gives a flavor for changes in the underlying economic and earth sciences, data revisions, correction of mistakes, and the pure passage of time. Also, for those estimates that have included estimated errors in past studies, it is possible to compare the actual revisions with the estimated errors. The projections of most environmental variables (such as emissions, concentrations, and temperature change) have seen relatively small revisions (with the emphasis here on relatively). However, there have been massive changes in the projections of the economic variables, including those that were forecast in 1992 and have now been realized in 2017. The stability of the environmental variables largely reflects the fact that these processes were relatively well understood by the early 1990s, and, therefore, modeling of these components within IAMs could be based on a solid scientific foundation.

Summary
Many areas of the natural and social sciences involve complex systems that link together multiple sectors. IAMs are approaches that integrate knowledge from two or more domains into a single framework, and these are particularly important for climate change. One of the earliest IAMs for climate change was the DICE/RICE (Regional Integrated model of Climate and the Economy) family of models, first published by Nordhaus 1992, with the latest version by Nordhaus 2018. A difficulty in assessing IAMs is the inability to use standard statistical tests because of the lack of a probabilistic structure. In the absence of statistical tests, the present study examines the extent of revisions of the DICE model over its quarter-century history. The study finds that the major revisions have come primarily from the economic aspects of the model, whereas the environmental changes have been much smaller. These results indicate that the economic projections are the least precise parts of IAMs and deserve much greater study than has been the case up to now, especially careful studies of long-run economic growth (to 2100 and beyond). Additionally, the approach developed here can serve as a useful template for IAMs to describe their salient characteristics and revisions for the broader community of analysts.

Contacts (BER PM)
Bob Vallario
U.S. Department of Energy Office of Science, Office of Biological and Environmental Research
Climate and Environmental Sciences Division (SC-23.1)
Multisector Dynamics
bob.vallario@science.doe.gov

(PI Contact)
John Weyant
Stanford University
weyant@stanford.edu

Funding
This work was supported by the U.S. Department of Energy, Office of Science, Biological and Environmental Research Program, Integrated Assessment Research Program, Grant Number DE-SC0005171.

Publications
Nordhaus, W. “Evolution of modeling of the economics of global warming: Changes in the DICE model, 1992–2017.” Climatic Change 148(4), 623–640 (2018). [[DOI: 10.1007/s10584-018-2218-y]

Nordaus, W. D. “An optimal transition path for controlling greenhouse gases.” Science 258(5086), 1315–1319 (1992). [DOI: 10.1126/science.258.5086.1315]

Related Links
Article

Topic Areas:

  • Research Area: Earth and Environmental Systems Modeling
  • Research Area: Multisector Dynamics (formerly Integrated Assessment)

Division: SC-33.1 Earth and Environmental Sciences Division, BER

 

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