'Nobel' Prize 2018. Cost–benefit analysis versus the sustainability principle: the climate change economics of Nordhaus

Abstract

The “Nobel prize in economics” to Nordhaus means the recognition of the Swedish institution to a certain economics of climatic change. His main contribution, the DICE model, models the interrelations between the economy and climate change and determines the "optimal" path of emission reduction that maximizes the present value of the sum of utilities from current and future consumption. The cost–benefit logic is applied to define what to do in the face of climate change, recommending, as a result, a very moderate action that limits the warming to 3.5⁰C, in sharp contrast to the proposals of organisations such as the IPCC. The analysis of Nordhaus incorporates a series of choices regarding methods and parameters based on value judgments and questionable assumptions that completely condition its results and make completely inappropriate to name its prescriptions as the "optimal policy" or as the answer from "economics" to the problem of climate change. The most problematic aspects in his approach refer to the treatment of the future, uncertainty and the application of the cost–benefit logic itself. In contrast to his proposal, we defend that the economic analysis of climate change should take into account the precautionary, sustainability and environmental justice principles.