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The Marginal Costs of Greenhouse Gas Emissions

Estimates of the marginal costs of greenhouse gas emissions are an important input to the decision how much society would want to spend on greenhouse gas emission reduction. Marginal cost estimates in the literature range between $5 and $25 per tonne of carbon. Using similar assumptions, the FUND model finds marginal costs of $9 23/tC, depending on the discount rate. If the aggregation of impacts over countries accounts for inequalities in income of 3. Marginal costs per region are an order of magnitude smaller than global marginal costs. The ratios between the marginal costs of CO2 and those of CH4 and N2O are roughly equal to the global warming potentials of these gases. The uncertainty about the marginal costs is large and right-skewed. The expected value of the marginal costs lies about 35% above the best guess, the 95-percentile about 250%.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Greenhouse gas emissions, climate change impacts, marginal costs, economic valuation, FUND model

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-4

Published in Volume20, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.