Climate Change Will Bankrupt the Country

[justaprogressive]

Back in 2018, Yale economist William Nordhaus won the Nobel Prize for his work on his Dynamic Integrated Climate-Economy (DICE) model. The idea was to set up a picture of the global economy, add on some estimates of the economic costs of warming with a “damage function,” plus estimates of what climate policy would cost, and all adjusted with a discount term to account for how people value current production more than future production (according to economists, at least). That way you can calculate an “optimal” climate policy in the form of a carbon tax that would precisely compensate for warming damages without burdening the economy too much.

At the time, I wrote an extensive critique of the model, focused mainly on its damage function. For this, Nordhaus used a smooth quadratic equation, meaning it ruled out the possibility of any sharp upward breaks from tipping-point effects, like the Arctic Ocean becoming permanently ice-free or Siberian permafrost melting and releasing massive amounts of methane. Following Nordhaus’s advice to let warming drift up to 3.5 degrees Celsius, I argued, would be taking a hideous risk.

Fast-forward seven years, and it turns out that I was wrong: The economic damage of climate change is already much, much worse than DICE predicted, and the economic cost of policy to fix climate change is actually negative. I would like to apologize for the error.

On the first point, Bloomberg Intelligence has the details in a new report estimating that climate disasters cost America $955 billion in the 12-month period ending May 1 this year, or about 3 percent of GDP. This mainly comes from skyrocketing home insurance premiums, which have doubled since 2017, as well as expensive weather disasters, like the one-two punch of Hurricanes Helene and Milton ($113 billion) and the Los Angeles fires ($65 billion).

https://prospect.org/environment/2025-06-20-climate-change-will-bankrupt-country/