The Climate Casino

William Nordhaus built the first integrated assessment models linking climate science to economic analysis and later received a Nobel prize for that work. This book presents his framework for a general readership.

The structure moves from the science, presented as the mainstream consensus, through the economic consequences of warming across sectors including agriculture, health, sea level and ecosystems, to the policy analysis. The economic core is the concept of the social cost of carbon, meaning the damage caused by an additional tonne of emissions, which under his framework should equal the price imposed on it. He argues that a carbon price applied universally is far more efficient than sector-specific regulation or subsidy, because it equalises the marginal cost of abatement across every source.

His policy conclusions were controversial from opposite directions. His models produced optimal warming paths substantially above the two degree target that international negotiations adopted, because the discounted damages did not justify the abatement cost in his calibration. Climate scientists and economists including Nicholas Stern and Martin Weitzman criticised the discount rate and the treatment of catastrophic tail risk, arguing that the damage functions understate what is unknown. Nordhaus also argues for climate clubs, meaning coalitions that impose tariffs on non-participants, as the only mechanism that solves the free-rider problem in international agreements. The book is clear and honest about its assumptions, which is what makes the disagreements about it precise.