How Climate Economics Got the Risks Wrong - CleanTechnica

The article from CleanTechnica discusses a recent study by researchers from the University of Exeter and Carbon Tracker that challenges longstanding economic models used to assess climate change risks. These models, notably William Nordhaus’s Dynamic Integrated model of Climate and the Economy (DICE), have been influential in shaping climate policy by framing climate change as an intertemporal optimization problem. DICE links emissions, temperature increases, economic output, and policy decisions, suggesting that economic damages from warming are gradual, manageable, and can be offset by growth and adaptation. However, the new study argues that these models underestimate risks by smoothing impacts over time, relying on average temperature changes, and ignoring critical factors like shocks, tipping points, and cascading failures. Key critiques focus on the damage functions and discounting methods central to DICE. The damage functions, which relate temperature rise to GDP loss, are not based on historical data from comparable conditions but rather on limited studies and expert judgment, making them highly sensitive to assumptions. Small changes in these