Flawed Climate Model May Cost U.S. Taxpayers A Trillion Dollars

  • Date: 16/08/16
  • Nic Lewis, Climate Etc

Last week, a U.S. federal court upheld the approach that the government uses to calculate the social cost of carbon when it issues regulations [link].  The models appear to have seriously overestimated the social cost of carbon.

Introduction and Summary

Integrated assessment models (IAMs) combine simple models of the carbon cycle and of the response of the climate system to changes in atmospheric carbon dioxide (CO2) concentration with models of economic growth that incorporate the effects of imposing a carbon tax. They calculate the resulting social utility after estimated damages from climate change and costs of measures adopted – as a result of the carbon tax – to abate CO2 emissions. The optimum time-varying carbon tax computed by IAMs, being that which maximises the discounted value of utility out to a specified end date, is equal throughout the period to the social cost of carbon (SCC). Results from IAMs are used by governments when deciding what carbon taxes to impose and/or levels of emission reductions to target.[i]

This article primarily concerns DICE, one of three IAMs used by the US Government in their assessment of the SCC,[ii] which was developed by William Nordhaus. He has written a book chapter that provides a good introduction to IAMs in general and to DICE in particular.[iii] The DICE model spans 2010 to 2309 in 5-year time steps, with the carbon tax being varied from 2015 on. In this article I am just concerned with the workings of the DICE climate module and I do not question the rest of the model.

Although I consider the values of equilibrium climate sensitivity (ECS) used in the DICE model and of the resulting transient climate response (TCR) produced by its climate module to be higher than justified by best estimates based on observations of the climate system, I do not challenge those values here. However, I will show the DICE climate module to be mis-specified, in the sense that the time profile of its temperature response to forcing is inconsistent with understanding of the behaviour of the actual climate system, as reflected in and simulated by current generation (CMIP5) atmosphere-ocean general circulation models (AOGCMs).

It has been shown that the evolution of global-mean temperature in AOGCMs may be well represented by a simple physically-based 2-box model, as used in DICE, with suitable choices of ocean layer depths for each box. However, I show here that the climate module parameter values used in DICE correspond to physically unrealistic ocean characteristics. In the DICE 2-box model, the ocean surface layer that is taken to be continuously in equilibrium with the atmosphere is 550 m deep, compared to estimates in the range 50–150 m based on observations and on fitting 2-box models to AOGCM responses. The DICE 2-box model’s deep ocean layer is less than 200 m deep, a fraction of the value in any CMIP5 AOGCM, and is much more weakly coupled to the surface layer. Unsurprisingly, such parameter choices produce a temperature response time profile that differs substantially from those in AOGCMs and in 2-box models with typical parameter values. As a result, DICE significantly overestimates temperatures from the mid-21st century on, and hence overestimates the SCC and optimum carbon tax, compared with 2-box models having the same ECS and TCR but parameter values that produce an AOGCM-like temperature evolution.

My analysis shows that if the parameters of the DICE climate module are altered from their standard settings so as to be consistent with AOGCM behaviour and actual ocean characteristics, but leaving its ECS and TCR values unchanged, the SCC and optimum carbon tax follows a substantially lower trajectory (a quarter to a third lower, up to 2110), with greater CO2 emissions but a lower peak level of warming. The present value of utility is improved by up to $19 trillion, depending on which alternative parameter set is used. When using these parameter sets, a loss of utility of the order of $1 trillion results from imposition of the higher carbon tax that is optimum when using the DICE climate module standard settings instead of their own, lower, optimum carbon tax. The climate response profile in FUND[iv] and in PAGE,[v] the other two IAMs used by the US government to assess the SCC, appear to be similarly inappropriate, suggesting that they also overestimate the SCC.

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