Prize lecture: William D. Nordhaus, Prize in Economic Sciences 2018 | Summary and Q&A

Summary

In this video, Professor William Nordhaus discusses the challenges nations face in devising policies to slow climate change. He explains the importance of understanding the interaction between the economy and the natural world, and emphasizes the need to raise the price of carbon dioxide emissions in order to effectively address climate change.

Questions & Answers

Q: What is the main focus of William Nordhaus' work on climate change?

William Nordhaus focuses on the interaction between the economy and the natural world, specifically the impact of human activity on resources, particularly through climate change. He has developed the field of integrated assessment of this interaction.

Q: How does the failure of markets in the energy sector contribute to climate change?

One of the main reasons markets fail in the energy sector is that they do not price or underprice the unintended byproduct of using energy, namely carbon dioxide emissions. This leads to the unregulated and excessive use of fossil fuels, causing climate change.

Q: How have integrated assessment models helped in dealing with climate change?

Integrated assessment models integrate knowledge from various disciplines and provide a framework to analyze and understand the complex interactions and impacts of climate change. These models have evolved over time and are based on fundamental scientific theories.

Q: What is the significance of mathematics in understanding and analyzing climate change?

Mathematics plays a critical role in modeling climate change and understanding its dynamics. It provides a language to study complex phenomena and is essential in designing computerized models that can simulate the impact of various policies and variables on climate change.

Q: What are the three main strategies to slow climate change?

The three main strategies to slow climate change are abatement or emission reduction, removing carbon dioxide from the atmosphere, and managing solar radiation. Among these, abatement is currently the most realistic and safe option. However, it can be expensive, especially if ambitious emission reduction targets are set.

Q: What are the challenges in predicting and estimating damages caused by climate change?

Estimating damages caused by climate change is a difficult task because it involves projecting long-term impacts that are not fully understood. It requires integrating economic, ecological, and scientific knowledge, which is challenging given the lack of historical experience in dealing with such complex processes.

Q: How do the damages caused by climate change compare with the costs of reducing emissions?

The damages caused by climate change can be substantial and include ecological and economic impacts. On the other hand, the costs of reducing emissions through abatement policies can also be significant. Economists analyze the trade-offs between these costs and benefits to determine the best balance in terms of developing effective climate change policies.

Q: Why is it necessary to raise the price of carbon dioxide emissions?

Economics highlights that to effectively address climate change, it is necessary to increase the price of carbon dioxide emissions. By putting a price on carbon, either through carbon taxes or market-based mechanisms like cap-and-trade, the externalities of unpriced emissions are corrected, providing an incentive to reduce emissions and move towards a low-carbon economy.

Q: What has been the effectiveness of international climate change treaties?

International climate change treaties, such as the Kyoto Protocol and the Paris Agreement, have been largely ineffective in reducing carbon emissions. This is primarily due to the problem of free-riding, where countries benefit from other countries' efforts without contributing equally. As a result, the global carbon price remains significantly lower than what is necessary to address climate change.

Q: What is the concept of a climate club?

A climate club is a model proposed by William Nordhaus to overcome the issue of free-riding in international agreements on climate change. The idea is to create a club-like agreement where participating nations take steps to reduce emissions, while non-participating nations face penalties, such as tariffs on their imports. The aim is to create a balanced system where the costs and benefits of emissions reduction are shared more equitably.

Takeaways

In conclusion, Professor William Nordhaus highlights the gravity of climate change and the need for urgent action. He stresses the importance of understanding the economic challenges posed by climate change and proposes raising the price of carbon dioxide emissions as a crucial step. Nordhaus also suggests the establishment of a climate club, where nations actively participate in emissions reduction efforts and penalize non-participants. Ultimately, addressing climate change requires harnessing human ingenuity and embracing low-carbon technologies.