Economics Inaction: Climate Change Sensitivity Analysis

This research paper examines the DICE model to explain why economic models of climate change often recommend minimal policy action despite the severity of the problem. The authors identify three specific model assumptions that lead to timid policy recommendations and suggest that cost-effectiveness analysis may be more useful than economic optimization modelling.

• The DICE model's recommendation for minimal policy action is driven by three specific factors: the discount rate, the assumed benefits of moderate warming, and how the latest climate science is treated. Adjusting these three elements results in an optimal policy characterized by a rapidly rising and higher marginal carbon price, which more effectively impacts physical climate measures.
• Modifications to the DICE model exhibit nonlinear interactions, particularly at low discount rates where synergy exists between individual changes. Under these low discount rates, the uncertainty regarding future damages increases, which reduces the utility of long-run economic modelling.
• The authors conclude that their analysis demonstrates the model's sensitivity to debatable assumptions rather than establishing a more reliable 'optimal' cost of carbon. They suggest that cost-effectiveness analysis, which focuses on shorter-term costs, may be more contributory than economic optimization modelling by reducing long-run economic paradoxes.

APA

Stockholm Environment Institute (2009). Economics Inaction: Climate Change Sensitivity Analysis. https://www.sei.org/publications/economics-inaction-climate-change-sensitivity-analysis/

Chicago

Stockholm Environment Institute. Economics Inaction: Climate Change Sensitivity Analysis. 2009. https://www.sei.org/publications/economics-inaction-climate-change-sensitivity-analysis/.

Wikipedia

{{cite report |author=Stockholm Environment Institute |title=Economics Inaction: Climate Change Sensitivity Analysis |date=7 October 2009 |url=https://www.sei.org/publications/economics-inaction-climate-change-sensitivity-analysis/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stockholmenvironmentinstitute2009economics, author = {{Stockholm Environment Institute}}, title = {{Economics Inaction: Climate Change Sensitivity Analysis}}, institution = {Stockholm Environment Institute}, year = {2009}, month = oct, url = {https://www.sei.org/publications/economics-inaction-climate-change-sensitivity-analysis/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }