Thomas S. Fiddaman
MIT Sloan School of Management
Much of the science and policy debate around global climate change has focused on models. Most models focus on a single aspect of climate change - atmospheric physics and chemistry, macroeconomic effects of abatement policies, or impacts on land cover from changing temperature and rainfall for example. Several models attempt to make climate change fully endogenous by including both the influence of human activities on climate and the impact of climate change on human activity. The best-known climate-economy model is William Nordhaus' DICE model. The model is a conventional macroeconomic growth model with simple carbon and climate subsystems added. Experiments with the model suggest that only limited effort should be addressed to CO2 emissions abatement.
While the DICE model meets some of the expectations of a system dynamics model, in other ways it is quite different. Key variables are exogenous, such as the growth of population and emissions reduction technology. Decisions are generated by optimization, rather than by boundedly rational decision rules. Carbon sources and sinks are treated as if they were infinite.
This paper explores the impact of structural changes to the model specification that attempt to bring it closer to the system dynamics paradigm. The impact of exogenous population and technology drivers is tested. Carbon flows are made more explicit, to demonstrate the importance of sink constraints and nonlinearities in the carbon cycle. A path dependent energy sector with endogenous technology is added. Boundedly rational decision rules are substituted for optimization. These tests generally suggest substantially higher abatement levels than Nordhaus concludes are necessary.