The global economy must be transformed immediately to avoid catastrophic climate damage, a new United Nations report declares. Climate economist William Nordhaus has been made a Nobel laureate. The events are being reported as two parts of the same story, but they reveal the contradictions inherent in climate policy—and why economics matters more than ever.

Limiting temperatures to 2.7 degrees Fahrenheit above preindustrial levels, as the U.N.’s Intergovernmental Panel on Climate Change urges, is economically and practically...