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

Rintaro Yamaguchi, Matthew Agarwala and Giles Atkinson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Fossil fuels represent a significant portion of the wealth of resource-rich nations – up to 35% (on average) of total national wealth across the Middle East and North Africa, according to the World Bank (2021). But combusting these resources releases greenhouse gases into the atmosphere, driving costly climate change, ultimately reducing natural capital, productive capacity, and the inclusive wealth of nations. Yet, in most wealth accounting studies, fossil fuel assets are valued in isolation from their broader social costs. This study incorporates the social cost of carbon (SCC) — the present value of the future damage costs resulting from a marginal increase in emissions — into mainstream approaches to valuing fossil fuel stocks. We find that the value of fossil fuel reserves is sensitive to the carbon price, the extraction and decarbonisation pathway, and the discount rate. The results have implications for how fossil fuels should be valued in wealth accounts, how they should be reflected in national statistics, and the future of wealth in fossil-fuel rich economies.

Keywords: genuine savings; natural capital; fossil fuel; inclusive wealth accounting; social cost of carbon; sustainable development (search for similar items in EconPapers)
JEL-codes: C43 D63 O47 Q01 Q54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2025-11-28
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