As a growing number of global leaders pledged to achieve net-zero carbon emissions ahead of this week’s climate conference in Glasgow, an awkward question hovered in the background: Is it worth it? That is as much an economic as a scientific question, and the economics of climate are far less settled than the science.

Until recently, economic models, including one developed by the world’s best known climate economist, Nobel laureate William Nordhaus, concluded climate change would hurt economic growth, but not by enough to...

As a growing number of global leaders pledged to achieve net-zero carbon emissions ahead of this week’s climate conference in Glasgow, an awkward question hovered in the background: Is it worth it? That is as much an economic as a scientific question, and the economics of climate are far less settled than the science.

Until recently, economic models, including one developed by the world’s best known climate economist, Nobel laureate William Nordhaus, concluded climate change would hurt economic growth, but not by enough to justify the steep cost of holding the rise in global temperatures to below 2 degrees celsius or achieving net zero emissions.

But some economists now argue those models use outdated data, put too low a value on future well-being and don’t properly price society’s desire for insurance against catastrophes. Their research is yielding higher costs from emissions, which doesn’t prove net zero is cost effective but suggests that prospect is more likely than once thought.

The White House is consulting these economists as it develops a new estimate of the social cost of carbon: That is the value, in today’s dollars, of all the future harm caused by a metric ton of carbon dioxide released now. A higher social cost of carbon would justify more stringent emissions regulations, and could thus influence how President Biden fulfills any commitments he makes in Glasgow.

Mr. Nordhaus, who pioneered climate economics as a 34-year-old professor at Yale University in 1975, is the creator of Dice, the best-known integrated assessment model (IAM) for studying how the climate and economy interact.

William Nordhaus developed the best-known integrated assessment model for studying how the climate and economy interact, and later won a Nobel Prize.

Photo: Michael Marsland/Yale University/Associated Press

In 1992, Dice calculated future damage from global warming would come to 1.3% of future gross domestic product, and put the social cost of carbon at under $5 per ton. That could only justify reducing emissions by 9%.

Mr. Nordhaus continued to refine Dice and in 2017 compared its latest predictions with those of 1992. The scientific inputs hadn’t changed much, but the economic inputs had: Population, GDP and carbon concentrations were a lot higher and the social cost of carbon had increased sevenfold, to $36.

Climate change “menaces our planet and looms over our future,” Mr. Nordhaus declared in 2018 upon sharing the Nobel Prize for economics for his climate work. Yet in that lecture he also cautioned that eliminating all emissions to hit the Paris climate accord’s 1.5 to 2 degree warming target wasn’t worth it. He reckoned that would cost 3.5% of GDP, whereas the damage from temperatures rising 3 degrees was just 2% of GDP. “Zero net emissions is unlikely to be feasible with today’s technologies,” he warned.

Money is a sticking point in climate-change negotiations around the world. As economists warn that limiting global warming to 1.5 degrees Celsius will cost many more trillions than anticipated, WSJ looks at how the funds could be spent, and who would pay. Illustration: Preston Jessee/WSJ The Wall Street Journal Interactive Edition

Despite the importance of Mr. Nordhaus’ work, the community of economists modeling climate and the economy is tiny. Including Dice, there are only three well-established IAMs. (By contrast, about 50 scientific modeling teams advise the United Nations Intergovernmental Panel on Climate Change.) Former President Obama’s administration used all three to calculate the first federal estimate of the social cost of carbon.

Since then, key features of those models have come under criticism. Most important is the discount rate used to convert future dollars to the present. The lower the rate, the more future damages are worth today. Mr. Nordhaus used a rate between 4% and 5%, after inflation. The Obama administration used 3%, which would produce a social cost of carbon of $46 now.

Many economists say an even lower rate is justified by the decline in inflation-adjusted interest rates to near or below zero in major economies, and by the fact that climate change could leave society, especially in developing countries, much poorer than otherwise. “Intuitively, a $100 cost in a future in which society has grown dramatically wealthier should be valued less, from today’s perspective, than the same $100 cost in a relatively poor future with stagnant economic growth,” says a new study by a team organized by Resources for the Future, an environmental think tank.

The study used a more up-to-date climate model and projections of GDP and population, and made adjustments for the greater harm $100 of damages inflicts on a stagnant society than on a prosperous one. It puts the social cost of carbon at $61 using a 3% discount rate, a third more than Mr. Nordhaus, and $168 using a 2% discount rate.

Another controversy surrounds the so-called damage function: how much economic harm a given change in temperature causes. Dice draws on several dozen studies, mostly from the 1990s and early 2000s. It doesn’t explicitly model nonmarket costs, like loss of biodiversity and greater uncertainty; rather, those are covered with a single, 25% adjustment to the cost of carbon.

Michael Greenstone,

a University of Chicago economist who led the Obama administration’s calculation of the social cost of carbon, said this is no longer good enough. Mr. Nordhaus’ estimate of 2% GDP loss is “not grounded in empirical evidence,” he said. “Nor does it capture and reflect the heterogeneity, the differences in climate impacts around the world.”

He said that since 2010, 438 empirical studies of climate impact have been released, none of which are reflected in established models. Mr. Greenstone co-founded the Climate Impact Lab to put climate economics on an empirical foundation. Its findings break important new ground. For example, they show the two biggest sources of damage from climate are premature death and decreased labor productivity due to extreme heat, neither of which figure prominently in established models.

In the other direction, CIL tempers the harm from extreme weather and rising sea levels by assuming people adapt, such as by building levies. This, however, varies considerably by region: CIL finds Norway will spend less on winter heat while Nigeria will spend 20 times more on electricity for more air conditioning. But a swath of developing populations won’t even be able to afford air conditioning and will have to endure the consequences. By dividing the world into 25,000 regions, CIL identifies localized risks that less granular models like Dice miss.

CIL’s preliminary findings put the social cost of carbon at more than $100, with a 2% discount rate. Just as people buy insurance against catastrophes like their house burning down, CIL finds evidence they would pay to avoid the small probability of climate catastrophes, such as a six-degree rise in temperatures. This insurance premium boosts the social cost of carbon above $200.

Neither RFF nor CIL set out to put a higher price on climate damage. That their findings do just that matters for the net zero debate. The International Monetary Fund estimates if the whole world put an average $75 price on carbon (such as through a carbon tax) by 2030, it would be on the path toward holding the temperature increase to below 2 degrees. The 38-nation Organization for Economic Cooperation and Development suggests $140 would achieve net zero. These numbers used to be far above the expected damage from higher temperatures, and thus hard to justify, economically. As the social cost of carbon gets revised up, they start to look more economically sound.

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“With the updated research, the marginal damages are higher than previously understood, suggesting a substantially higher optimal carbon price consistent with more stringent action to address climate change,” said Kevin Rennert, who led the RFF study.

The debate isn’t about to be settled. Economic assumptions are more subjective than scientific assessments, which are themselves evolving. The discount rate, for example, depends on how to value future generations. “A lot of people will say that’s a moral judgment,” said Maureen Cropper, a University of Maryland economist who co-led an expert panel on how to revamp the social cost of carbon.

Nor is the outcome of this debate about to revolutionize policy. Few governments around the world are imposing penalties on carbon that come anywhere close to its social cost. Democrats in Congress passed up a chance to include a carbon tax in their own climate plans. Mr. Nordhaus plans to revise Dice, but still thinks 2 degrees isn’t feasible. That target “is, realistically, impossible without rapid and universal carbon pricing in virtually all countries,” said Mr. Nordhaus. “We will pass the 1.5 degree threshold before we even get serious at a global level.”

Write to Greg Ip at greg.ip@wsj.com