Climate Change Policy: What Do the Models Tell Us?
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.
To appear in the Journal of Economic Literature, September 2013. My thanks to Millie Huang for her excellent research assistance, and to Janet Currie, Christian Gollier, Chris Knittel, Charles Kolstad, Bob Litterman, and Richard Schmalensee for helpful comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Robert S. Pindyck, 2013. "Climate Change Policy: What Do the Models Tell Us?," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 860-72, September. citation courtesy of