The Marginal Damage Costs of Different Greenhouse Gases: An Application of FUND

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

doi:10.5018/economics-ejournal.ja.2014-31

Abstract

Abstract The authors use FUND 3.9 to estimate the social cost of four greenhouse gases—carbon dioxide, methane, nitrous oxide, and sulphur hexafluoride—with sensitivity tests for carbon dioxide fertilization, terrestrial feedbacks, climate sensitivity, discounting, equity weighting, and socioeconomic and emissions assumptions. They also estimate the global damage potential for each gas—the ratio of the social cost of the non-carbon dioxide greenhouse gas to the social cost of carbon dioxide. For all gases, they find the social costs and damage potentials sensitive to alternative assumptions. The global damage potentials are compared to global warming potentials (GWPs), a key metric used to compare gases. The authors find that global damage potentials are higher than GWPs in nearly all sensitivities. This finding suggests that previous papers using GWPs may be underestimating the relative importance of reducing noncarbon dioxide greenhouse gas emissions from a climate damage perspective. Of particular interest is the sensitivity of results to carbon dioxide fertilization, which notably reduces the social cost of carbon dioxide, but only has a small effect on the other gases. As a result, the global damage potentials for methane and nitrous oxide are much higher with carbon dioxide fertilization included, and higher than many previous estimates.

Highlights

Carbon dioxide is the main anthropogenic greenhouse gas, but certainly not the only one
The carbon dioxide fertilization effect is comparatively large because it occurs in the near future, having a relatively larger effect on the net present value than the negative impacts that occur in later time periods
We do this because it is the global damage potentials, rather than carbon dioxide equivalent values based on global warming potentials, that represent the appropriate trade‐off between greenhouse gases in a cost‐benefit analysis

Summary

Introduction

Carbon dioxide is the main anthropogenic greenhouse gas, but certainly not the only one. In order to be effective and least cost, climate policy requires the reduction of the emissions of all greenhouse gases (Weyant et al 2006). This in turn requires a mechanism to understand the potential trade‐offs between the various greenhouse gases. The appropriate trade‐off between greenhouse gases in a cost‐benefit framework was recognized in the early 1990s (Eckaus 1992;Michaelis 1992;Schmalensee 1993) and shortly thereafter a number of papers sought to quantify these ratios of the relative global marginal damage potential of greenhouse gas i with respect to the marginal damage of carbon dioxide (Fankhauser 1995;Hammitt et al 1996;Kandlikar 1995;Kandlikar 1996;Reilly and Richards 1993;Wallis and Lucas 1994), dubbed the “global damage potential.”. The paper continues as follows: Section 2 presents the model, Section 3 discusses the results, and Section 4 concludes

The model

Social Cost of Carbon Dioxide

Social Cost of Methane

Social Cost of Nitrous Oxide

Social Cost of Sulphur Hexafloride

Discussion and conclusion