William D. Nordhaus’ speech at the Nobel Banquet, 10 December 2018.

Ers Majestäter, Ers Kungliga Högheter, Excellenser, Kära pristagare, Mina damer och herrar, Våra barn, Våra barnbarn.

The 2018 citation for economic sciences highlights “the causes and consequences of technological innovation and climate change.”

The science of climate change was founded in 1896, the very year that Alfred Nobel died and established these prizes. In that year, the Swedish chemist Svante Arrhenius provided the first numerical prediction of the impact of doubling atmospheric carbon dioxide. His estimate of 5.1 °C is remarkably close to the figures produced by the highest-resolution models today.

Over the last half-century, the full implications of climate change and its impacts have been illuminated by the intensive research of scientists in different fields. These studies depict an increasingly dire picture of our future under uncontrolled climate change.

The signal contribution of economics is to recognize that climate change is a harmful unintended side-effect of economic growth, known in economics as an external effect or externality.

The CO₂ externality arises from the fact that the damages from CO₂ emissions are not paid for by the emitters. The result is too much burning of fossil fuels, too much climate change, and too many harms to humans, wildlife, ecosystems, and more.

Economic theory suggests that the best remedy for such externalities is a pollution charge – a charge on carbon emissions, or what is now called a carbon tax. A carbon tax raises the price of carbon emissions to reflect its social costs. It provides powerful incentives to reduce emissions and, as my fellow laureate Paul Romer has shown, to develop new low-carbon technologies.

So, after more than a century, the science is clear. The economics is clear. Now, it is up to those who represent us, our elected leaders, to act responsibly to implement durable and effective solutions.

We should not underestimate the obstacles. Some are real, such as the need to develop new technologies and to forge international institutions that will promote cooperation. Some obstacles are unnecessary and man-made, such as those posed by the financial interests of polluters or the ludicrous arguments of some of our politicians.

The real obstacles need the continued dedicated work of scientists and engineers; the unnecessary obstacles need to be addressed by education and patient rebuttal.

I end this toast with words for students, young people, and our grandchildren. You are likely to live through the 21st century. The globe at century’s end will be vastly different from today. The condition of our world will depend on the steps we, in this generation, take now to slow global warming.

I hope that you, our grandchildren, will look back in the years ahead with appreciation. I hope that you can say that we, in this generation, had the resolve to overcome the obstacles and take the steps necessary to preserve our unique and beautiful planet.

Tack, and thank you.