The Nobel Memorial Prize for William D. Nordhaus

AuthorLint Barrage
Publication Date01 Jul 2019
Scand. J. of Economics 121(3), 884–924, 2019
DOI: 10.1111/sjoe.12383
The Nobel Memorial Prize for William D.
Lint Barrage
Brown University, Providence, RI 02912, USA
William D. Nordhaus and Paul M. Romer received the 2018 Sveriges Riksbank Prize in
Economic Sciences in Memory of Alfred Nobel. This paper surveys Nordhaus’ contributions
on “integrating climate change into long-run macroeconomic analysis”, for which he was
recognized with this Prize.
Keywords: Carbon tax; climate change; climate clubs; DICE model; energy models; integrated
assessment; social cost of carbon
JEL classification:B0; O4; O44; Q5; Q54
I. Introduction
William D. Nordhaus was awarded the 2018 Sveriges Riksbank Prize in
Economic Sciences in Memory of Alfred Nobel “for integrating climate
change into long-run macroeconomic analysis”. The ubiquity of climate
change in modern economic analyses might render it difficult to appreciate
how truly ground-breaking this contribution has been. In the early 1970s,
amidst heated public and academic debates about limits to growth from
energy and resource scarcity, Nordhaus presciently flagged climate change
as the more likely natural constraint on long-run growth (Nordhaus, 1974).
He cautioned about melting polar ice caps as a consequence of misdirected
economic growth almost 20 years before the United Nations released its
first Intergovernmental Panel on Climate Change (IPCC) report in 1990
(Nordhaus and Tobin, 1972). Nordhaus immersed himself in the physical
sciences literature and pioneered the first integration of a carbon cycle
model into an economic linear programming model of global energy
markets (Nordhaus, 1975a). He used this integrated model to produce the
*I am indebted to Kieran Walshfor detailed feedback and suppor t in the writing of this article. I
also thank Ingrid Barrage, Ken Gillingham, John Hassler, Charlie Kolstad,Per Krusell, Christian
Traeger, and Ken Youngstein for their helpful comments, and Jesse Ausubel for sharing his
insights. Finally, I thank William Nordhaus for his invaluable feedback on this article, and for
everything he has taught me. All errors are my own.
2019 The Author.The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨oreningen
or utgivande avthe SJE /The editors of The Scandinavian Journal of Economics.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License,
which permits use and distribution in anymedium, provided the original work is properly cited, the use is non-commercial and
no modifications or adaptations are made.
L. Barrage 885
first ever estimates of global carbon taxes that could maximize economic
welfare subject to constraints on greenhouse gas concentrations (Nordhaus,
1977). This work so clearly defined a new frontier that 1975 Nobel
Laureate Tjalling Koopmans took time to describe the climate problem
and Nordhaus’ efforts in his own Nobel banquet toast at the time.1
After Nordhaus’ pioneering introduction in 1977, it would be years before
other scholars began to study carbon taxes, and the term did not even
appear again in the American Economic Review until 1991. Today, carbon
pricing policies have been adopted by an estimated 46 countries and
24 subnational jurisdictions around the world (World Bank, 2018). As
early as 1980, Nordhaus developed the first climate–economy optimizing
integrated assessment model (IAM) by simultaneously incorporating the
economy’s greenhouse gas emissions, the carbon cycle, and a first
aggregate climate change damage function into an economic g rowth model.
Nordhaus (1980) introduced both a theoretical characterization and the
first ever numerical estimates of optimal climate policy based on an
integrated cost–benefit analysis. This fundamental innovation also came
years before such frameworks became more widely studied, and other
scholars built on Nordhaus’ estimates from the beginning.2The 1980s
saw significant advancements in scientific understanding of climate change
and its potential impacts, and Nordhaus served on the frontlines of early
syntheses of this work, for example, through his service on the National
Academy of Sciences’ Carbon Dioxide Assessment Committee. Building
on this growing knowledge, Nordhaus continued to refine his climate–
economy model (Nordhaus, 1991a), culminating in the introduction of
the Dynamic Integrated model of Climate and the Economy (DICE;
Nordhaus, 1992, 1993a,b, 1994a). Since its inception, DICE has served
as a conceptual and modeling foundation for climate change economics
and its policy applications. DICE is an unequivocal benchmark of the
literature. Because of the model’s transparency and Nordhaus’ persistent
efforts to make its code accessible and understandable to all, countless
scholars have stood on the shoulders of DICE and its multi-regional
variant RICE (Nordhaus and Yang, 1996; Nordhaus and Boyer, 2000) to
analyze the climate implications of everything from scientific uncertainty
to international technology spillovers. In the policy realm, DICE is
one of three models that have been used by the US government to
value the social cost of carbon (SCC; Greenstone et al., 2013). These
1Koopmans received the prize jointly with Soviet scholar Leonid Kantorovich for their
“contributions to the theory of optimum allocation of resources” (see https://www.nobelprize.
2For example,Peck and Teisberg (1992) used the damage estimates in Nordhaus (1991a) to build
another early optimizing integrated assessment model.
2019 The Author.The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨oreningen
or utgivande avthe SJE /The editors of The Scandinavian Journal of Economics.
886 The Nobel Memorial Prize for William D. Nordhaus
SCC estimates have informed regulatory impact analyses of over 70 US
federal rule-makings.3The US Courts have even overturned federal agency
decisions for failing to incorporate these SCC estimates (Metcalf and Stock,
2017). Notwithstanding recent changes in US federal policy, these SCC
estimates continue to inform decision-making across US states and other
Alfred Nobel established his namesake prize for “those who ...have
conferred the greatest benefit to humankind”.5Since diagnosing the lack
of a carbon price as key potential source of conflict between economic
growth and the environment in the 1970s, Nordhaus and his collaborators
have integrated research from the physical, natural, and social sciences to
give the world a flexible tool that can quantify such prices for a wide range
of policy objectives. This work remains foundational for modern climate
change economics, and carbon prices are now adopted by governments
around the world to redirect the global economy towards a more sustainable
long-term growth path. Without a doubt, this work exemplifies the spirit of
Nobel’s vision.
This body of work also represents science at its best: integrative across
disciplines, visionary in scope yet incremental in progress, transparent, and
producing knowledge for the benefit of humankind. Nordhaus has always
emphasized the importance of the broader scientific community and the
institutions that enable his (and all of our) work. He began his official
2018 Nobel Lecture in part by noting that:
“I am here today [...] just one person representing what I
think of as an invisible college of people around the world and
over time, not just in economics but in many disciplines [...],
dealing with this broad set of problems having to do not just
3See Table A1 in the Appendix for a listing of federal rules, and also Nordhaus (2014) for a
4For example, both New York and Illinois have used this SCC estimate to set zero-
emissions electricity subsidy rates; the New York State Energy Research and Development
Authority (NYSERDA) Clean Energy Standard (
Programs/Clean-Energy-Standard and the Future Energy Jobs Bill, SB 2814, 220 ILCS 5/20-
135). Canada has also adopted this SCC estimate (Policy on Cost–Benefit Analysis, Treasury
Board of Canada Secretariat (see
federal-regulatory-management/guidelines- tools/policy-cost-benefit- analysis.html).
5While the Sveriges Riksbank Prize in Economic Sciences was not a part of Nobel’s original
will, the Royal Swedish Academy of Sciences “appoints the prize-winner(s) according to the
same principles as for the Nobel Prizes” (see
the-tasks-of- the-riksbank/research/economics-prize/).
2019 The Author.The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of F¨oreningen
or utgivande avthe SJE /The editors of The Scandinavian Journal of Economics.

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