Insights Not Numbers: The Appropriate Use of Economic Models
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Economic models establish a logical and consistent framework for considering the implications of different policies, and have been extensively used to evaluate the consequences of different policy choices for addressing global climate change. But it is important to understand both the limitations of these models and what insights can be gleaned from their results.
Every model uses its own set of assumptions, definitions, structure, and data, and the results ultimately depend on those attributes and choices. For example, the flexibility of the economy in responding to change or the flexibility of the policy being modeled both have significant implications for any assessment of the costs of a particular policy. Furthermore, there is enormous uncertainty in attempting to predict outcomes that occur in 50 or 100 years, both in terms of technologies that might be available and the costs of using those technologies.
Economic modeling cannot predict future events, nor can it produce precise projections of the consequences of specific policies. Rather, model results are more appropriately used to provide insights into key economic relationships, to explore the impact of alternative policy architectures (such as the inclusion of offset credits or emissions trading in a regulatory program for greenhouse gases), and to produce ranges of results based on plausible assumptions and reliable data.
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