Efficiency, Equity and Optimal Carbon Abatement

Abstract

The separability between efficiency and equity has been an underlying assumption in most of the assessments of the costs to reduce carbon emissions. Chichilnisky and Heal (1994) suggested that this property does not hold anymore if carbon abatement is viewed as a public good produced in a decentralised way by private consumption activities. In that context, the optimal carbon tax, the optimal abatement level and equity considerations are deeply interrelated. This paper shows: i) in what sense equity and efficiency are not separable; and, ii) while the equalisation of marginal abatement utilities is not necessary for Pareto efficiency, the principle of an uniform carbon tax or a system of tradeable permits remains valid. Some policy conclusions are drawn from these results.