Improving the Social Cost of Nitrous Oxide

On his first day in office, US President Joe Biden ordered an update to the social costs of carbon, methane (CH4) and nitrous oxide (N2O). These damage costs are crucial to evaluating the global benefits and costs of policy measures to address climate change and are used in several countries beyond the United States, including Canada and the United Kingdom. Scientists and economists have invested heavily in improving estimates of the social cost of carbon. However, the social cost of N2O has been given much less attention. We argue that the unique environmental and human health impacts of N2O — particularly in relation to its role as an ozone-depleting substance — are not well represented in current estimates (if at all), leading to a significant undervaluation of the social cost of N2O. We estimate that incorporating N2O’s damage to the stratospheric ozone layer would increase its social cost by approximately 20%. Better accounting of nitrogen (N) pollution writ large — from its impacts on air and water quality to biodiversity loss — would make N2O mitigation even more economically compelling. In short, a more accurate valuation of N2O damages is likely to significantly expand the number of measures and policies deemed economically and socially beneficial by the Biden administration and other countries as they implement their climate agendas.

Social costs represent the damage to society and the environment caused by the emission of an additional unit of a pollutant. Integrated assessment models (IAMs) are often used to estimate social costs, built around emissions trajectories that are linked to damage functions that capture environmental and societal impacts. Developing these emissions trajectories and damage functions requires continuous innovation in the bio-geophysical and social sciences. Not all social cost estimates have kept pace with research advances, and as a result, values for several pollutants are out of date and are likely to underestimate the true social costs. Here we draw attention to the serious gaps in the current valuation of the social cost of N2O. Updating the valuation would underline the significant climate, health and other environmental benefits associated with reducing N2O emissions and highlight the important contribution it could make to meeting national climate targets and other sustainable development objectives.