ABSTRACT
Greenhouse gas abatement should be carried out where it is cheapest to do. In addition to cost efficiency in the domestic context, which has largely been the topic of Chapter 7, a least cost solution should also be sought at an international level. If domestic efficiency involves equalizing the marginal costs of abatement between the different sectors of an economy, international efficiency requires their equalization between countries. It is well known that most of the proposals discussed in the policy debate so far — such as uniform percentage reductions or emission stabilization across countries — will generally not lead to this outcome. Uniform schemes may cause countries facing high abatement costs to undertake abatement which could more cheaply be achieved elsewhere (see Hoel, 1991a). Several numerical models have produced empirical illustrations of this fact. Table 10.1 shows estimates of the cost difference between a uniform reduction agreement and efficient cooperation, achieved through a uniform carbon tax.
