Nordhaus receives Frontiers of Knowledge Award for work on climate change

Yale economist William Nordhaus
William Nordhaus

Yale economist William Nordhaus has received the BBVA Foundation Frontiers of Knowledge Award for developing a pioneering model that successfully integrates climate science and economics to identify the most effective paths against global warming.

The award citation honors Nordhaus, Sterling Professor of Economics, for founding the field of climate change economics by “pioneering a framework that integrates climate science, technology and economics to address the critical question: What should the world do to limit climate change?”

Nordhaus began studying the economic impact of climate change in 1975, just as climate scientists were issuing their first, tentative warnings about a rise in global temperatures due to greenhouse gas emissions caused by the burning of fossil fuels. He stumbled on the problem quite by chance, through sharing an office with climatologist Allan H. Murphy during a research stay in Vienna. The complexity of the challenge and the dearth of information on the variables involved meant it took Nordhaus over 15 years to develop his model. By then an active community of climate researchers was already in existence, but the climate change issue had yet to garner the attention of economists.

Today, Nordhaus’ DICE (Dynamic Integrated Climate-Economy) model, and its regional variant RICE, are “widely used,” the citation affirms, to estimate the costs and benefits of curbing emissions. And numerous economists around the world are constructing and comparing their own assessment models, with similar conclusions. This growing community draws its inspiration from Nordhaus’ groundbreaking work, without which, according to the awards jury, we would have no reliable handle on the socioeconomic consequences of continuing emissions or to decide which counter-measures to apply.

Nordhaus used his models and economic insights to illuminate such considerations as the role of discounting future climate damages, the risk of catastrophic damages, and the role of technological change in the energy system,” the citation concludes. “Owing to the transparency and simplicity of his approach, his models are used worldwide to analyze climate policy options.”

His models, says Nordhaus “are an attempt to represent all the key linkages between economics and climate in the simplest possible manner: variables like population, GDP, use of carbon fuels and climate change. I had to come up with equations to represent the linkage between, say, population and economic growth, on the one hand, and emissions, on the other, and then on to climate change. It took me a long time to develop DICE because it required finding the different pieces then putting them together in a form that could be operated on a computer to get results.”

Among his constant preoccupations is the quality of statistical information and the integration of data drawn from varied disciplines. It was this that led him to propose incorporating environmental factors and non-market activities into a new system of national accounts, he says.

More expensive carbon

For Nordhaus, the crux of the matter is to set a realistic price on carbon. This, he contends, is the right way to go about limiting climate change: “The key insight of my work was to put a price on carbon in order to hold back climate change. The main recipe to alleviate climate change is to make sure governments, corporations and households face a high price on their carbon emissions. Today it is virtually zero. If the price were higher people would have other choices, like renewable energies. It’s not a recipe that tastes very good, but it’s the one that will work.”

After decades championing the taxation of carbon emissions, Nordhaus says he has his reservations about the effectiveness of the Paris agreement: “The Paris Accord has good points, but it is purely voluntary, and the measures taken are insufficient to slow emissions of CO2 and other gases. For a start, the price put on carbon emissions is far too low, I would guess just 10% of what is needed right now if we want to curb emissions. The Paris effort is worthwhile, because it is a good thing to bring countries together, but is much too little to reach the goal of reducing emissions to contain temperature rises at under 2ºC.”

Taxing emissions would boost investment in clean technologies and renewable energies, says the Yale professor. In carbon emission rights trading in the European Union, the price of carbon is around 7.5 euros per ton – when, according to Nordhaus, it should really stand in the interval of 30 to 40 euros.

Nordhaus declines to define himself as either optimistic or pessimistic about humanity’s ability to limit climate change. He is adamant however, that “we have to be realistic.” To denialists and skeptics, he notes, “I would say that this is a very important problem that is getting worse, with a major impact in terms of sea level rise, wildfires, the consequences for human health … This is something that is real. If we care about our country, not just today and tomorrow, but in the long run, we have to take this seriously and work with other countries to stop it. Here in the United States, we take all kinds of steps to protect our national security, making investments on a major time scale, and we should do exactly the same with the challenge of climate change. It is not something that will harm our economy, it will help our economy.”

Nordhaus says the skeptics who still cast doubts on the science of climate change are “like the people decades back who refused to accept the evidence that smoking causes cancer. But today all the evidence suggests that climate change, like smoking, is dangerous in the extreme.”

He says he is aware that his work has yet to translate into practical policy measures: “So far virtually nothing has been done at the global level to slow climate change. We are moving in the right direction, but for every two steps forward we take one step back. This is one of the most difficult political processes we are currently facing, because it forces us to impose costs now in order to protect the distant future, and that is a hard sell.”

His latest book, released in 2013 with the title “The Climate Casino,” addresses the risks and socioeconomic uncertainty of a world threatened by climate change.

Climate,” he says, “is a casino in the sense that we are taking serious risks with our planet and ourselves. But we don’t need to walk into that casino, we can take steps now to mitigate and reduce the risks.”

Biographical information

Nordhaus studied at Yale University, earning a B.A. in 1962, then went on to earn a Ph.D. in economics from the Massachusetts Institute of Technology. On completion of his thesis in 1967, he joined the faculty at Yale, where he remains to this day. In addition to the Department of Economics, he is also affiliated with Yale’s School of Forestry and Environmental Studies.

The professor chaired the task force that recommended Yale set a carbon charge at the social cost of carbon — estimated by the federal government to be $40 per ton of carbon dioxide. The Yale Carbon Charge Program was launched this September.

A member of President Jimmy Carter’s Council of Economic Advisors from 1977 to 1979, Nordhaus has also served on numerous committees of the U.S. National Academy of Sciences, including the Committee on Nuclear and Alternative Energy Systems, the Panel on Policy Implications of Greenhouse Warming, the Committee on National Statistics, the Committee on Data and Research on Illegal Drugs, and the Committee on the Implications for Science and Society of Abrupt Climate Change. He also chaired a panel of the National Academy of Sciences, which produced a report, “Nature's Numbers,” that recommended approaches to integrate environmental and other non-market activity into national accounts.

Nordhaus has been co-author since 1985 of Paul Samuelson’s classic textbook “Economics”, his many publications include “Invention, Growth and Welfare”; “Is Growth Obsolete?”; and “The Efficient Use of Energy Resources.” Some of his titles — like “Managing the Global Commons: The Economics of Climate Change” and “Warming the World” — explored previously uncharted ground. His other works include “A Question of Balance: Weighing the Options on Global Warming Policies” and, most recently, “The Climate Casino: Risk, Uncertainty, and Economics for a Warming World.”

Nordhaus is on the research staff of the U.S. National Bureau of Economic Research and has been a member and senior advisor of the Brookings Panel on Economic Activity. He is also a member of the Congressional Budget Office Panel of Economic Experts and was the first chair of the Advisory Committee for the Bureau of Economic Analysis. In 2014-2015 he served as president of the American Economic Association.

BBVA Foundation Frontiers of Knowledge Awards

The promotion of knowledge based on research and artistic and cultural creation, and the interaction of these domains, forms a core strand of the BBVA Foundation’s action program, along with the recognition of talent and excellence across a broad spectrum of disciplines, from science to the arts and humanities.

The BBVA Foundation Frontiers of Knowledge Awards were established in 2008 to recognize outstanding contributions in a range of scientific, technological, and artistic areas, together with knowledge-based responses to the central challenges of our times.

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