Pindyck on Integrated Assessment Models

Economist Robert Pindyck takes a dim view of the state of integrated assessment modeling:

Climate Change Policy: What Do the Models Tell Us?

Robert S. Pindyck

NBER Working Paper No. 19244

Issued in July 2013

Very little. A plethora of integrated assessment models (IAMs) have been constructed and used to estimate the social cost of carbon (SCC) and evaluate alternative abatement policies. These models have crucial flaws that make them close to useless as tools for policy analysis: certain inputs (e.g. the discount rate) are arbitrary, but have huge effects on the SCC estimates the models produce; the models’ descriptions of the impact of climate change are completely ad hoc, with no theoretical or empirical foundation; and the models can tell us nothing about the most important driver of the SCC, the possibility of a catastrophic climate outcome. IAM-based analyses of climate policy create a perception of knowledge and precision, but that perception is illusory and misleading.

Freepers seem to think that this means the whole SCC enterprise is GIGO. But this is not a case where uncertainty is your friend. Bear in mind that the deficiencies Pindyck discusses, discounting welfare and ignoring extreme outcomes, create a one-sided bias toward a SCC that is too low. Zero (the de facto internalized SCC in most places) is one number that’s virtually certain to be wrong.