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The marginal damage costs of different greenhouse gases: An application of FUND

  • Waldhoff, Stephanie
  • Anthoff, David
  • Rose, Steven
  • Tol, Richard S. J.

We use FUND 3.5 to estimate the social cost of carbon dioxide, methane, nitrous oxide, and sulphur hexafluoride emissions. We show the results of a range of sensitivity analyses, focusing on the impact of carbon dioxide fertilization. Ignored in previous studies of the social cost of greenhouse gas emissions, carbon dioxide fertilization has a positive effect at the margin, but only for carbon dioxide. Because of this, the ratio of the social cost of a greenhouse gas to that of carbon dioxide (the global damage potential) is higher - that is, previous papers underestimated the importance of reducing non-carbon dioxide greenhouse gas emissions. When leaving out carbon dioxide fertilization, our estimate of the social cost of methane is comparable to previous estimates. Our estimate of the global damage potential of methane is close to the estimates of the global warming potential because discounting roughly cancels carbon dioxide fertilization. Our estimate of the social cost of nitrous oxide is higher than previous estimates, also when omitting carbon dioxide fertilization. This is because, in FUND, vulnerability to climate change falls over time (with development) while in the long run carbon dioxide is a more potent greenhouse gas than nitrous oxide. Our estimate of the global damage potential of nitrous oxide is larger than the global warming potential because of carbon dioxide fertilization, discounting, and rising atmospheric concentrations of both gases. Our estimate of the social cost of sulphur hexafluoride is similar to the one previous estimate. Its global damage potential is higher than the global warming potential because of carbon dioxide fertilization, discounting, and rising concentrations.

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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-43.

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Date of creation: 2011
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Handle: RePEc:zbw:ifwedp:201143
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  1. Richard S. Eckaus, 1992. "Comparing the Effects of Greenhouse Gas Emissions on Global Warming," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-36.
  2. Maureen L. Cropper & James K. Hammitt & Lisa A. Robinson, 2011. "Valuing Mortality Risk Reductions: Progress and Challenges," NBER Working Papers 16971, National Bureau of Economic Research, Inc.
  3. John Reilly & Kenneth Richards, 1993. "Climate change damage and the trace gas index issue," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(1), pages 41-61, February.
  4. Samuel Fankhauser & Richard Tol & DAVID Pearce, 1997. "The Aggregation of Climate Change Damages: a Welfare Theoretic Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 249-266, October.
  5. Kandlikar, Milind, 1996. "Indices for comparing greenhouse gas emissions: integrating science and economics," Energy Economics, Elsevier, vol. 18(4), pages 265-281, October.
  6. Anthoff, David & Hepburn, Cameron & Tol, Richard S.J., 2009. "Equity weighting and the marginal damage costs of climate change," Ecological Economics, Elsevier, vol. 68(3), pages 836-849, January.
  7. Tol, Richard S. J. & Narita, Daiju & Anthoff, David, 2008. "Damage Costs of Climate Change through Intensification of Tropical Cyclone Activities: An Application of FUND," Papers WP259, Economic and Social Research Institute (ESRI).
  8. Richard S. J. Tol, 1999. "The Marginal Costs of Greenhouse Gas Emissions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 61-81.
  9. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
  10. Peter Michaelis, 1992. "Global warming: Efficient policies in the case of multiple pollutants," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(1), pages 61-77, January.
  11. Kandlikar, Milind, 1995. "The relative role of trace gas emissions in greenhouse abatement policies," Energy Policy, Elsevier, vol. 23(10), pages 879-883, October.
  12. Tol, Richard S. J., 2001. "Equitable cost-benefit analysis of climate change policies," Ecological Economics, Elsevier, vol. 36(1), pages 71-85, January.
  13. P. Michael Link & Richard S.J. Tol, 2004. "Possible Economic Impacts of a Shutdown of the Thermohaline Circulation: an Application of FUND," Working Papers FNU-42, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2004.
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