The DICER Model: Methodological Issues and Initial Results

31 p.

This paper introduces DICER, a model for the integrated assessment of climate – economy interactions within an optimal growth framework developed based on the structure of the DICE2007 model. We present the methodological differences introduced so far in DICER and some preliminary results of its deterministic version. We observe interesting results in comparison to other IAMs, such as (i) lower peak temperatures; (ii) radiative forcing differences; (iii) differences in control rates; and (iv) sensitivity of results to parameters such as climate sensitivity. A further innovation of this work has been to account for uncertainty and risk through an application of option pricing. The method allows for a simple representation of the risks through measures of volatility in the damages and abatement costs and shows that taking these factors into account lowers maximum mean temperatures by about 0.5oC. We also present some methodological issues that need to be dealt with in the near future in DICER.