Book Club

The Chair read for you The Climate Casino : Risk, Uncertainty, and Economics for a Warming World by William Nordhaus

Published on 27 November 2019

William Nordhaus is an economics professor at Yale University, specializing in public choice theory.   In 2018, he (and his counterpart Paul Romer) received the “Nobel Prize” in Economics for his work integrating the effects of climate change into dynamic economic models.

Following this, his book “Le Casino climatique: risques, incertitudes et solutions économiques face à un monde en réchauffement” [1]dating from 2013 was published anew in 2019. We must therefore be aware of the time lag of this book and not be surprised by the absence of a discussion on the Paris agreements of 2015 or the latest IPCC reports, including the famous one on global warming of 1.5°C.

Throughout the book, the author illustrates the current challenge of climate change through the metaphor of a climate casino and thus highlights the notion of constant uncertainty we face when considering climate. Indeed, according to him, the economic growth we have enjoyed is producing dangerous changes in our climate system, which in turn will have unpredictable and most likely dramatic consequences for human life. In addition, Nordhaus’ various analyses are supported by its integrated dynamic climate-economy model DICE, which represents an assessment model that integrates climate with other scientific and economic aspects of climate change, thus making it possible to better understand the current situation and also to undertake more realistic forecasts than those that do not integrate these aspects.

Nordhaus begins by taking a look at the current state of climatology by presenting the general concepts of climate change. It briefly outlines the baseline assumption linking greenhouse gases to the increase in the Earth’s temperature and also focuses on the economic and technological origins of climate change (such as the exploitation of fossil fuels used to fuel different societies). From this, he puts forward the idea that a large number of changes are predictable but that many unforeseen events will also occur, to reduce their occurrence as much as possible, it is then necessary to act. As a result, he said, climate change is now an economic and political issue.

The author then analyses the impacts of climate change on different human and living systems. First, he notes the resilience to climate change of managed systems such as agriculture and health notably if they have the time and resources to adapt (although the author tends to underestimate the difficulty of seeing this resilience actually occur). Secondly, it focuses on the impacts of unmanaged and unmanageable systems (sea-level rise, intensification of hurricanes, ocean acidification and biodiversity loss) that are difficult to estimate. Although their impacts are difficult to quantify and control, they should not be ignored but rather studied further because they will undoubtedly be the most destructive in the long term, not to mention the concerns about tipping points such as unstable ice sheets and the inversion of ocean currents.

Nordhaus then discusses the strategies and costs of slowing down climate change, such as adaptation, geo-engineering and mitigation. It takes the view that work in economics and engineering shows that it is feasible to contain climate change within safe temperature limits. However, efficiency requires not only near-universal and cooperative participation where countries join the effort quickly (within the next few decades according to Nordhaus, which doesn’t seem alarming enough) but also requires profitability achieved if all sectors and countries incur marginal costs of reducing GHG emissions that are approximately similar.

Finally, the author examines the central issues of climate policy at the national and international level by highlighting cost-advantage analysis, the central role of carbon pricing (carbon tax versus cap and trade), the design of incentives to participate and the avoidance of countries’ stowaway behavior in global/regional agreements, as well as the importance of technology for a low-carbon economy.

There are many obstacles to overcome in the development of a rational climate policy, including detractors of climatology and fallacious arguments that can influence public opinion, or the gap between the cost of a policy today and its climate benefits which are only visible in the long term. Nevertheless, the main objective to be retained here is the increase in the CO2 emissions price ((and other GHG), which must continue to be targeted.

In general, this book is accessible to the general public because it provides a popular overview of the various major climate change issues while taking into account their economic implications, but it should be noted that the examples used by Nordhaus focus unfortunately mainly on the United States region.

Marco Monnier, Research Fellow trainee « Agricultural households’ adaptation under uncertainty and weather shocks risks in sub-Saharan Africa »

[1], Williams Nordhaus, « The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, (French edition : 1st 2013, 2nd 2019), 24,90€, 352 pages