Incorporating an investment multiplier into DICE supports more rapid decarbonization

Abstract Integrated assessment models (IAMs) assume that economies operate on the efficiency frontier, resulting in hard tradeoffs between decarbonization, consumption, and investment. Meanwhile, Keynesian models recognize that climate investments can increase employment and output today. This paper attempts to bridge these literatures through a simple modification of the most well-known IAM. We review the neoclassical economic assumptions underpinning dynamic integrated climate-economy model (DICE) and incorporate a range of investment multipliers into DICE that reflect economists’ uncertainty about how climate investments affect output. Our results suggest that decarbonization should be undertaken more rapidly than standard DICE recommends and provides support for pathways within the range of 1.5 °C–2 °C for investment multipliers of 0.75 or greater. The addition of an investment multiplier also suggests that rapid decarbonization can lead to faster economic growth.