Disentangling the Stern/Nordhaus controversy. Why and how do beliefs and modelling choices matter?

Baptiste Perrissin Fabert, Etienne Espagne, Antonin Pottier and Franck Nadaus

No 4270, EcoMod2012 from EcoMod

Abstract: The Stern/Nordhaus controversy has polarized the widely disparate beliefs about what to do in order to tackle the climate challenge. Between Nordhaus' ``policy ramp'' which recommends gradual action to avoid costly premature low-carbon investments and Stern's ``early strong emissions cut'', the policy gap looks unbridgeable. To explain such differences, comments following the publication of the Stern Review (2006) have mainly focused on the role played by the unusual low discount rate retained by Stern. This paper aims at appraising a broader set of reasons for that controversy in order to better understand differences in results. We first assess the impacts of beliefs on critical parameters such as the discount rate but also abatement costs and climate damages that are two other major sources of disagreement between Stern and Nordhaus. Then, we address the modelling drivers of the controversy such as the form of the abatement cost (with or without inertia) and the damage functions (quadratic vs sigmoid), the integration of uncertainty on climate dynamics, and the decision-making framework (one-shot vs. sequential decision) that shape integrated assessment models (IAM). This modelling side of the controversy was vividly discussed during the 1990s in the so-called ``when'' flexibility controversy and was surprisingly disregarded in the more recent Stern/Nordhaus controversy.we built RESPONSE a flexible Integrated Assessment Model that makes it possible to (i) compare Stern and Nordhaus' worldviews within the same modelling framework, (ii) re-build step-by-step the modelling controversy in order to appraise the respective impacts of a broad set of possible combinations of modelling choices.This allows us to qualify the role played by the discount rate in the controversy relatively to other beliefs on critical parameters, and appraise the impact of different modelling choices on results. Eventually, we suggest some modelling conditions for helping reconcile apparently opposite climate-policy recommendations.

Keywords: world; Energy and environmental policy; Optimization models (search for similar items in EconPapers)
Date: 2012-07-01
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Persistent link: https://EconPapers.repec.org/RePEc:ekd:002672:4270

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