Assessing the economic implications of carbon emissions on climate change: Estimating the impact using methane-adjusted DICE model

Abstract

This study aims to highlight the importance of accurately estimating methane emissions, one of the most dangerous and important greenhouse gases in the context of climate change. By incorporating methane emissions as a variable within the integrated assessment model DICE (Dynamic Integrated Climate-Economy model), we investigate how these emissions influence temperature changes and subsequently impact economic policies, including climate economic policies, carbon pricing, and non-price factors. We use the existing DICE-2020 and DICE-2023 models as references for our analysis. In addition to industrial emissions that can be detected through satellite observations, we address the challenge of estimating natural emissions from wetlands and permafrost, which leak gradually and are difficult to detect. By considering these emissions, we account for their exogenous nature and their divergence from the current situation. Our study reveals that incorporating methane emissions into the DICE model has significant implications for global temperature outcomes and subsequent policy changes. We find that by implementing existing methane reduction policies, which includes cutting the level of methane emissions in half and increase the carbon price in 4 times to 500 USD per ton, it is possible to achieve the more ambitious goal of limiting the global temperature increase to 1.5 °C by 2100 in an optimistic scenario instead of the common target of 2 °C. More pessimistic scenarios that do not imply big change in methane emissions, but the same numerical data for carbon price, still suggests the possibility of keeping the global temperature below 2 °C. The findings of this study emphasize the importance of estimating methane emissions in efforts to mitigate climate change. Recognizing the impact of methane on global temperature change, policymakers can make informed decisions regarding economic policies, carbon pricing, to effectively address the challenges posed by climate change. This research contributes to the field by incorporating methane emissions into the DICE model, providing a more complete understanding of its influence on global climate outcomes and economic implications. Additionally, by highlighting the potential benefits of methane reduction measures, this study provides information on how to achieve more ambitious climate targets.