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Non-renewable natural capital and the social cost of carbon in wealth accounting

Author

Listed:
  • Yamaguchi, Rintaro
  • Agarwala, Matthew
  • Atkinson, Giles

Abstract

Fossil fuels represent a significant portion of the wealth of resource-rich nations. However, their valuation as non-renewable natural capital in inclusive or comprehensive wealth accounting to indicate sustainability does not embody the external costs of climate change damages. This study consistently incorporates the social cost of carbon (SCC) into the value of depletion of non-renewable natural capital for wealth accounting of resource-rich nations. We derive shadow prices of depletion under different resource allocation mechanisms (RAMs) in the presence of externality costs from emissions, allowing for declining extraction and an unburnable natural capital stock constraint. In our application to oil, depletion is valued differently across RAMs, depending on how rent, SCC, and decarbonisation develop in the future. The sustainability implication of the choice of RAM is even more significant in the presence of SCC.

Suggested Citation

  • Yamaguchi, Rintaro & Agarwala, Matthew & Atkinson, Giles, 2026. "Non-renewable natural capital and the social cost of carbon in wealth accounting," LSE Research Online Documents on Economics 137191, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:137191
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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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