The abnormal climate response of the DICE integrated assessment model – a trillion dollar error?

Integrated assessment models (IAMs) combine simple models of the carbon cycle and of the response of the climate system to changes in atmospheric carbon dioxide (CO2) concentration with models of economic growth that incorporate the effects of imposing a carbon tax. They calculate the resulting social utility after estimated damages from climate change and costs of measures adopted – as a result of the carbon tax – to abate CO2 emissions. The optimum time-varying carbon tax computed by IAMs, being that which maximises the discounted value of utility out to a specified end date, is equal throughout the period to the social cost of carbon (SCC). Results from IAMs are used by governments when deciding what carbon taxes to impose and/or levels of emission reductions to target.