× Expand MPI10/MediaPunch/IPX A view of debris and damage from Hurricane Milton in St. Pete Beach, Florida, October 2024

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.

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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).

Now, some caveats are in order. This is just one year in one country, and damages are surely not uniform across the globe. Additionally, much of the disaster response shows up as more spending that is included in GDP. But undoubtedly most of it must be counted as damage, as it involves spending to replace structures or infrastructure that otherwise would have gone to productive business, particularly in the context of a low-unemployment, high-interest-rate economy. As the Bloomberg analysis argues, disaster spending is “crowding out consumer discretionary spending elsewhere in the economy and putting pressure on local governments to prioritize disaster repair over other infrastructure projects.”

Ultimately, the Bloomberg analysis is very straightforward and plausible. Home insurance is obviously in crisis because of weather disasters that are obviously caused by climate change. And however you slice it, 3 percent of GDP is wildly outside the range of the 2018 DICE model, which predicts a hit of just 0.5 percent of GDP from 1.47 degrees Celsius of warming (the global average of 2024). If we’re off by a factor of six in the world’s second-largest economy, then something is seriously amiss.

On the second point about the costs of climate action, we have a natural experiment in the form of Donald Trump attempting to tear up President Biden’s climate policy. A recent analysis from Yale’s REPEAT Project estimates that should this effort succeed, by 2035 it will raise American household and business energy costs by more than $50 billion per year, or $270 to $415 per household; reduce capital investment in electricity generation and clean fuels production by $1 trillion; threaten $522 billion in existing investment in clean energy and manufacturing; end the battery manufacturing boom; and seriously hinder new electricity generation projects, thus increasing average electricity bills by about 9 percent by 2030, or up to 17 percent in some states, including Pennsylvania and Texas. An analysis by Energy Innovation estimated that by 2030, Trump would destroy 1.7 million jobs and reduce U.S. GDP by $320 billion per year.

The reason is obvious: Renewable energy is now the cheapest kind of energy, and it’s getting cheaper every year. Just since 2018, the price of lithium batteries has fallen by 47 percent; the price of solar panels has fallen by 35 percent. New green technology using that ever-cheaper power to produce carbon-free concrete, steel, and so on will clearly drive global economic growth for the rest of this century at least. Trump’s plan to force Americans to keep paying for uneconomical coal plants is not unlike the Soviet obsession with filth-spewing heavy industry that was already outdated by the 1950s. Trump’s administration will cede the industries of the future to China and Europe for the foreseeable future.

To Nordhaus’s credit, he published an updated version of DICE in 2023 taking critiques like mine into account, particularly raising much more caution about high levels of warming. “Note that the damage function has been calibrated for damage estimates with temperature increases up to 4 °C and is not well-suited for temperature increases above that range,” he writes in the instruction manual. Still, even this model only estimates a 1.6 percent hit to GDP for three degrees of warming—far too small.

I don’t think that Trump is much concerned with economic estimates of anything, least of all climate change. He isn’t ripping up the Inflation Reduction Act because of the DICE model. Like all fascisms, MAGA is a movement of irrational cultural grievance bent on evil for its own sake. Wind turbines, solar panels, and EVs are liberal-coded, and therefore must be destroyed, regardless of the heavy collateral damage to conservative regions like, again, Texas.

But it is still worth pointing out how gravely mistaken Nordhaus’s approach was. Economists commonly assume that any policy has trade-offs (“There is no such thing as a free lunch”), and that environmental regulation burdens the economy by definition. In the case of climate, neither assumption was correct. If we had pursued vigorous climate policy back in the 1980s when Carl Sagan and James Hansen were testifying before Congress in favor of it, we’d be richer, safer, and healthier.