The most appropriate place to start when reflecting on Nordhaus’ contributions is at the beginning of his career. He began with an interest in how innovation and technology influences growth, much like his fellow 2018 Nobel laureate Paul Romer, but then recognised that other environmental and resource challenges are equally important and interesting to study.
In the 1970s, there was great concern in both the academic community and popular press about resource scarcity – will we run out of minerals and fuels on which we rely for human wellbeing? Some of his early work sharply points out that as resources become scarce, they become more valuable, leading to further discoveries of the resources, innovation in economising on those resources, and innovation in substituting scarce resources for more plentiful – and less expensive – resources (Nordhaus 1973).
Moreover, this work emphasised that the changes in price would be expected to lead to a smooth path of resource use that allows humans to continue to maintain their wellbeing. The past several decades have largely proven Nordhaus correct, as society today is vastly more resource and energy efficient and still has ample resources at least in the foreseeable future.
But Nordhaus’ early work recognised that while resource scarcity does not present a pressing threat to long-run economic growth, the human impact on the environment provides much greater cause for worry.
In 1974, Nordhaus wrote: “I have performed a rough calculation of the atmospheric concentration of carbon dioxide… Assuming that 10% of the atmospheric carbon dioxide is absorbed annually (G. Skirrow), the concentration would be expected to rise from 340 ppm [parts per million] in 1970 to 487 ppm in 2030 – a 43% increase. Although this is below the fateful doubling of carbon dioxide concentration, it may well be too close for comfort.”
Nordhaus was prescient – it turns out we are right on track to hit 487 ppm of carbon dioxide in 2030. In two papers (Nordhaus 1975, 1977), he laid the groundwork for what is now an entire field on the economics of climate change.
In these early papers, Nordhaus began with a classic macroeconomic model of long-run growth. This groundbreaking work was the first to include a representation of carbon dioxide concentrations and the climate in such a macroeconomic framework, and to begin analysing how climate change can be mitigated at a the lowest cost possible.
This work was followed up by construction of one of the first, and the most well-known, integrated assessment model of climate change. Models are crucial for understanding the nature of climate change and how to address it because the issue involves physical, chemical and economic relationships that would simply not be possible to grasp fully without a clear framework.
Nordhaus’ first integrated assessment model – the Dynamic Integrated model of Climate and the Economy (DICE) – provides just such a framework. The single model contains all of the links among carbon dioxide concentrations, the climate, economic damages from climate change, and a model of the economy that produces carbon dioxide emissions – closing the loop (Nordhaus 1992).
