By Elisa Jiménez Alonso
On Monday 8 October, the Royal Swedish Academy of Sciences announced its decision to award William Nordhaus the Nobel Prize in Economic Sciences “for integrating climate change into long-run macroeconomic analysis.”
Currently a faculty member of Yale University, which he joined in the late 1960s, Nordhaus has focused his research on economic growth and natural resources, and the economics of climate change. One of his main contributions are his models to determine efficient paths for coping with climate change.
While his earlier work (e.g. Reflections on the Economics of Climate Change, 1993) somewhat underestimates climate change impacts on booming economies like the United States of America or Japan, his integrated assessment model (IAM) was groundbreaking. In the mid-1990s Nordhaus became the first to create a quantitative model that described the global interconnectivity and mutual influence of physics (climate module), chemistry (carbon-circulation module), and economics (economic-growth module).
The model, also known as the Dynamic Integrated Climate-Economy model, or DICE model, allows a weighing of the costs and benefits to curb climate change. It is used to simulate how the economy and climate co-evolve, and what the consequences of different climate policy interventions are (see figure below).
The Nobel Prize announcement came on the same day the Intergovernmental Panel on Climate Change published its special report on the importance of limiting global warming to 1.5 degrees Celsius.
Nordhaus is sharing this year’s Nobel Prize in Economic Sciences with Paul Romer, who is receiving it for integrating technological innovations into long-run macroeconomic analysis. The Royal Swedish Academy of Sciences sees both their contributions as crucial additions towards addressing central questions of our time and adds “we do not yet have conclusive answers to these questions, but the laureates’ methods have been fundamental in allowing current and future researchers to improve our understanding of the best way to progress towards sustained and sustainable global economic growth.”