Greenhouse gas abatement: How much? and Who pays?

Two basic questions that arise in international policy debates over greenho use gas emission reduction are: (1) How much to control? and (2) Who pays? In this paper, we investigate the interdependence between these two issues. We characterize general conditions under which the Pareto-optimal environm ental control will depend on the distribution of the cost burden among nati ons and provide a sufficient condition under which a Pareto optimum can be implemented by a market mechanism with tradable emission permits. However, numerical results suggest that the interdependence may be weak in a hypothe tical negotiation between the OECD and the ROW (the rest of the world). The approach can be applied to more realistic cases with multiple regions. (C) 2000 Elsevier Science B.V. All rights reserved.