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The Social Costs of Greenhouse Gas Emissions: An Expected Value Approach

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  • Samuel Fankhauser

Abstract

This paper provides an order-of-magnitude assessment of the marginal social costs of greenhouse gas emissions. The calculations are based on a stochastic greenhouse damage model in which key parameters are random. This allows a closer representation of current scientific understanding and also enables calculation of a damage probability distribution. Thus, we account explicitly for the uncertain nature of the global warming phenomenon. We estimate social costs of C02 emissions in the order of 20 $/tC for emissions between 1991 and 2000, a value which rises over time to about 28 $/tC in 20212030. Similar figures for CH4 and N20 are also provided. As a consequence of the prevailing uncertainty, the standard deviation of the estimates is rather high. The distribution is positively skewed, which implies that the currently predominant method of using best guess values will lead to an underestimation of the expected costs of emissions.

Suggested Citation

  • Samuel Fankhauser, 1994. "The Social Costs of Greenhouse Gas Emissions: An Expected Value Approach," The Energy Journal, , vol. 15(2), pages 157-184, April.
    • Handle: RePEc:sae:enejou:v:15:y:1994:i:2:p:157-184
    DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-9
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    References listed on IDEAS

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    1. Nordhaus, William D, 1993. "Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model," American Economic Review, American Economic Association, vol. 83(2), pages 313-317, May.
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    More about this item

    Keywords

    Greenhouse gas emissions; Social costs; Expected value approach; CETA; DICE;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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