Methodological and empirical flaws in the design and application of simple climate-economy models

One of the main arguments brought forward in favour of the continued use of simple climate-economy models is their transparency, which should enable researchers to easily interpret the simulation results and adapt the model to their specific research interests. We investigate the degree to which this claim is supported in the case of the DICE model but most of our findings are relevant for other welfare-optimizing climate-economy models as well. Specifically, this paper reviews the handling of time discounting in social welfare functions, the combination of different social welfare functions in an analysis, the calibration of uncertain climate parameters, the representation of uncertainty about future climate change, and the evolution of carbon abatement costs over time. We find that each of these aspects has been treated inconsistently in the past, and that these inconsistencies can strongly affect the results of several previous studies. We discuss the methodological questions raised by some of these problems and make specific recommendations how to avoid the problems identified here in future analyses.