This year's Nobel Prize in Economics has been for Americans William D. Nordhaus of Yale University and Paul M. Romer of the NYU Stern School of Business. The first, in the words of the committee to integrate climate change in the long-term macroeconomic analysis. In my opinion, with this decision, not only the merits of a great economist are being recognized, but the importance of the problem of climate change, one of the great challenges of humanity, is also being pointed out to the scientific community and the general public. of the 21st century.
A few months ago, Nordhaus received the BBVA Foundation Frontiers of Knowledge Award in the category of Climate Change for opening this field in economic research. He did it with his seminal work To Slow or Not to Slow: The Economics of the Greenhouse Effect (1991), which raises the need to apply the cost-benefit analysis to define the optimal control policies for greenhouse gas emissions. greenhouse effect. But it is his 1994 book, Managing the Global Commons, and his 1996 article written in collaboration with Zili Yang, that have had the most influence on subsequent literature. In his book he presented his famous Dynamic Integrated Model of Climate and Economics (DICE, in its acronym in English), and in his article a review of this model, the RICE, Integrated Regional Model of Climate and Economics.
With these two contributions, this economist laid the foundations for what are now known as integrated valuation models. It is an application of Solow's growth model, Nobel in 1987, for the world economy divided into ten regions with a climate module that includes the interactions between climate and economy. The authors make a hundred-year projections for three scenarios. A scenario of "non-regulation" in which the different governments do not implement any emissions control policy. A second scenario in which all governments act cooperatively, and a third scenario in which governments control emissions in a non-cooperative manner, that is, acting unilaterally. A first surprising thing about the results obtained by Nordhaus and Yang is that the losses due to climate change (cost of inaction) are in the range of 1% to 2% of world income, which in no case can be described as a catastrophic result. However, they point out that the lack of cooperation can cost approximately 300 billion dollars. Finally, it should also be noted that the authors calculate that the tax on CO2 emissions that would have to be applied to implement the cooperative scenario would have to be increasing until reaching 27 dollars at the end of the 21st century.
To date, the climate change economy is a fully consolidated field of specialization in which very intense debates have taken place, such as the one carried out by Nordhaus itself since the publication in 2006 of the Stern Report on the Economics of Climate Change .
To conclude, I would like to mention the conference that, as president of the American Economic Association (EPA), held in 2015 on international climate agreements such as the Kyoto Protocol. In this conference, he presented a daring proposal that consists of forming a club of countries that, in addition to setting an international target price for CO2 emissions, commit to penalize non-signatories using a uniform tariff on imports. Working with a revised version of its model, it calculates that a relatively low tariff would achieve a high participation, as long as the target price for emissions did not fall below $ 50 per ton.
Santiago J. Rubio He is Professor of Economic Analysis at the University of Valencia.