Economist Steve Keen published in article in 2020 titled, The appallingly bad neoclassical economics of climate change. In it, he alleges that climate economists such as William Nordhaus and Richard Tol have underestimated the impact of climate change by "at least an order of magnitude." Keen primarily responds to two approaches in the economics literature for estimating damages from climate change. The first is the so-called 'Enumeration' approach to estimating damages from climate change. He quotes Tol who said,
In this approach, estimates of the “physical effects” of climate change are obtained one by one from natural science papers, which in turn may be based on some combination of climate models, impact models, and laboratory experiments. The physical impacts must then each be given a price and added up. For agricultural products, an example of a traded good or service, agronomy papers are used to predict the effect of climate on crop yield, and then market prices or economic models are used to value the change in output.
Keen then quotes (Nordhaus 1991) and an FAQ from the IPCC indicating that both Nordhaus and the IPCC explicitly exclude 87% of economic industries from their approach towards estimating damages, since these industries are composed of activities performed indoors. As Keen notes, just because an activity is performed indoors does not mean that it is not affected by climate change. He quotes Nordhaus saying the following,
Table 5 shows a sectoral breakdown of United States national income, where the economy is subdivided by the sectoral sensitivity to greenhouse warming. The most sensitive sectors are likely to be those, such as agriculture and forestry, in which output depends in a significant way upon climatic variables. At the other extreme are activities, such as cardiovascular surgery or microprocessor fabrication in ‘clean rooms’, which are undertaken in carefully controlled environments that will not be directly affected by climate change. Our estimate is that approximately 3% of United States national output is produced in highly sensitive sectors, another 10% in moderately sensitive sectors, and about 87% in sectors that are negligibly affected by climate change.
The IPCC FAQ is quoted as saying,
Economic activities such as agriculture, forestry, fisheries, and mining are exposed to the weather and thus vulnerable to climate change. Other economic activities, such as manufacturing and services, largely take place in controlled environments and are not really exposed to climate change.
Such an obvious blunder on the part of both Nordhaus and the IPCC would be shocking. However, I'm a bit skeptical that Keen fully understands the literature here. In a later section, Keen seemingly admits that he dove into the climate econonomics literature in order to find a flaw, rather than dispassionately reviewing it in order to uncover truth. He says, "While locating the fundamental flaw in the ‘enumeration’ approach took some additional research, the flaw in the statistical approach was obvious in the first reference I read on it." Given my skepticism of his scientific neutrality, I wanted to understand how Nordhaus, Tol and other climate economists would reply to his critique.