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The author accepts global warming as a given and a very serious problem. He considers what we can do about it at what cost. His approach is to create a computer model in which he hopes to capture the salient economic, energy and climate factors while being simple enough that it can be understood and run repeatedly with different scenarios. I am not an economist and and the equations and their import were often beyond my understanding. I relied on Professor Nordehaus's academic standing (Stirling Professor of Economics at Yale and coauthor of a standard economics text with Paul Samuelson) and took him to be fair in his assessments. I thought he was thorough is his descriptions of the limitations of this approach and his model which I would describe as an economic and cost benefit analysis over time of various strategies for ameliorating global warming.

To understand his model you must understand how future losses from climate change are "discounted" by economists. Freeman Dyson explains this as follows "the value of one dollar invested at an average interest rate of 4 percent for a period of one hundred years would be fifty-four dollars ... therefore, for every dollar spent now on a particular strategy to fight global warming, the investment must reduce the damage caused by warming by an amount that exceeds fifty-four dollars in one hundred years' time to accrue a positive economic benefit to society."

Nordhaus runs his model under eight varying assumptions and or goals so that they can be compared 100 and 200 years out.
1) captures the cost of doing nothing to which the others can be compared.
2) is an optimal policy economically without constraints of eventual temperature or CO2 increase. It only spends on abatement when in costs less than doing nothing.
3) constrains allowable CO2 to 1.5, 2.0 and 2.5 times the pre-industrial level in separate runs.
4) constrains the eventual temperature increase to 1.5, 2.0, 2.5 and 3.0 degrees C. in separate runs.
5) runs several variants of the Kyoto agreement, with and without the US and with an improved treaty.
6) evaluates the Stern review proposal (early major carbon reduction).
7) evaluates the Gore proposal (early stringent carbon reduction).
8) evaluates the result of finding a cheap non-carbon energy source for all energy needs.

For the results let me quote Nordhaus: "The net present-value global benefit of the optimal policy is $3 trillion relative to no controls. This total involves $2 trillion of abatement costs and $5 trillion of reduction climate damages. Note that even after the optimal policy has been taken, there will still be substantial residual damages from climate change, which we estimate to be $17 trillion More of the climate damages are not eliminated because the additional abatement would cost more than the additional reduction in damages."

Note that less than 25% of the economic damage is prevented because it is not cost effective in the "optimal" policy to prevent the rest and thus global temperature increases 2.7 C. (about 5 F.) by 2100. There is also large scale damage for which a dollar amount cannot be assigned and is thus omitted from the model. This includes loss of species, discomfort of higher temperatures, displacement of human, animal and plant populations, shifting weather patterns etc.

Limiting atmospheric CO2 to two times pre-industrial levels or limiting the temperature increase to 2.5 C. produce very similar results to the "optimal" policy. Limiting CO2 to 1.5 times pre-industrial or temperature to 1.5 C. has a net loss of $14 trillion (damages plus abatement costs) over doing nothing. The Gore proposal produces similar results but costs $21 trillion. The Kyoto proposal results where almost identical to doing nothing!

The model also computes an optimal carbon tax for each strategy which because of the discounting needs to increase gradually over time. For the "optimal" strategy the carbon tax would be $27 per ton initially, $90 per ton in 2050 and $200 per ton in 2100. Note that because CO2 is 3.2 times as heavy as carbon if you tax CO2 the rate would be 3.2 times lower or just over $8 initially. Nordhaus also discusses the advantages of a carbon tax over a cap and trade approach.

These results surprised me. I had assumed that the Kyoto Agreement approach, although flawed, could be good if modified and joined by the US and that the Gore approach would be even better. I was annoyed by those who proposed putting the major carbon restrictions off to the future which seemed to push the problem onto our children. I though a cap and trade approach would be superior to a carbon tax since if guaranteed specific reductions. What makes this such an important book from my point of view is that I found myself to be so frequently wrong. The approaches I had favored turned out to be either relatively ineffective, much more expensive or both. This is not a book for those who do not want their current conceptions challenged.

Findings I found important include: 1) A moderate carbon tax with gradual increase is much more cost effective in achieving the SAME GOAL as a stiff initial tax. This was by far the most surprising to me. 2) total participation is much much more efficient that partial whether it is nations or industries. 3) A carbon tax has several important advantages over a cap and trade system. 4) The cost of the various approaches varies dramatically in ways I would not have predicted. 5) There is a huge gain in finding alternative energy sources early in the game making research a top priority deserving large public investment.

This is a book about economic tradeoffs - a question of balance. The author is clear that these models do not capture esthetic, moral, species extinction, stewardship and other concerns which policy makers must address. For instance, the "optimal" economic approach leaves our great grandchildren in a world 5 degrees warmer, with many fewer species, and major environmental shifts. I myself would probably opt for a less economically "optimal" approach that preserved more of the world as I know it and takes fewer risks about possible positive feedback loops leading to an escalating and uncontrollable heat gain. We can make these political decisions more rationally when we can estimate the costs of alternatives. Other things being equal, we would like to arrive at a chosen result at the least cost. I believe that professor Nordhaus's continuing work is a major advance toward helping us achieve that goal.

It is important to remember that this is a simplified model for which the inputs are often best guesses and that some crucial unknown features may turn out to have been omitted. I expect the model will improve over time as more data is accumulated.

If you do not wish to buy the book I think most of the material can be found and the author's website (Google: William Nordhaus). Again I think this is a very important book and I consider it a must for those setting global warming amelioration policy.

An important perspective on the issue of global warming, and a caution of how overreach in attempting to reduce CO2 emissions can make the cost worse than the cure.

Exactly what is needed, a balanced, non-hysterical way to think about the economics of global warming. Overall: use a carbon tax to help us stop using fossil fuels and switch to renewables.

Misc. Notes and Quotes:

(p. xi) "…challenge of coping with global warming is particularly difficult because it spans many disciplines and parts of society. Ecologists may see it as a threat to ecosystems, .. ski resorts as a mortal danger.."

(p. 5) "Economic history and analysis indicate that it will be most effective (to reduce CO2 emissions) to use the market mechanisms, primarily higher prices of carbon fuels…"

(p. 6) "..economic damages from climate change will be on order of 2.5% of world output per year by the end of the twenty-first century."

(p. 7) His model: DICE. "Givens of model are, for each major region, population, stocks of fossil fuels, and the pace of technological advance…'(my italics)
" one of the shortcomings of the model is that … technological change is exogenous rather than produced in response to changing market forces.."

(p. 144) Only 3% of output and 4% of population are < 10 m elevation!!

(p. 67) Business as usual model assumes market driven oil etc use for 250 years, then pay up. Also give 50 years for comparison.

(p. 170) DICE assumes "benchmark real return on capitol of around 6 per cent a year.." but p. 10 says 4%.

Summary: In today's dollars:
If no intervention: Damages will be $22.6 trillion.
Most efficient intervention will reduce totals costs and damages to $17.3 trillion, saving of $5.3 trillion.

Therefore, (p. 199) "economic benefits of a low-cost and environmentally benign backstop technology (alternative to fossil fuels)… have a net present value around $17 trillion." Current GWP is $110 trillion.

Optimal carbon tax by year to achieve most efficient intervention:
2005 $27 per ton $0.09/gallon gasoline
2050 $95 per ton $0.30/gal
2100 $202 per ton $0.60/gal
Detailed criticism of Stern and Gore proposals (see Fig. 5-3, p. 90; also Chap 9) as costs >> benefits in those proposals.
Reservations: (p. 193) : "..a more rapid resolution of uncertainty implies that it may be beneficial to impose less costly restraints until the exact nature of future consequences is revealed."
Also: "..high climate-change scenerios are ones with high level of consumption per capita." Fig. 7-4,
BUT "Quite another ethical stance would be to hold that each generation should leave at least as much total capital (tangible, natural, human, and technological) as it inherited."
So, if you use a lot of oil, but produce huge technological increases, you are FINE.
EXCEPT that Nordhaus model does not include damage to ecosystems in terms of species loss per se.