Abandon the idea of an “optimal economic path” for climate policy

Abstract

Many economic modelers believe that there is an “optimal economic path” for solving the climate problem that exists independent of human choices. This belief rests on the notion that Integrated Assessment Models can determine the path that “maximizes global welfare” and, in turn, this path should drive climate policy. This commentary focuses on an under‐appreciated problem with that belief. We argue that the existence of pervasive increasing returns to scale, network externalities, learning curves, spillovers, and other nonlinear effects puts the idea of a single optimal economic path at odds with our current understanding of the most important forces driving the development of real economic and technological systems. We further argue that this idea is detrimental to rigorous understanding of climate solutions.This article is categorized under: Assessing Impacts of Climate Change > Scenario Development and Application Climate Economics > Economics and Climate Change Climate Economics > Economics of Mitigation

Modelling induced innovation for the low-carbon energy transition: a menu of options

“…Such a transformation brings uncertainties, that models of induced innovation explore by means of introducing complexity features in their models. Koomey et al [71] refers to complexity features in models of induced innovation as increasing returns to scale [72][73][74], learning curves [10, 40,58], the results of wider non-linear effects that are dependent on innovation spillovers and network effects [28,75,76]. All of these complex features in models generate path dependency, so that past decisions impact the future of a system, locking it in into specific (often undesirable) paths [6,8,74].…”