ABSTRACT
This chapter examines the efficiency costs of avoiding adverse industry-distributional effects under environmental taxes and quotas. It describes and applies numerical models, whose results extend and quantify those of the analytical model. As in the analytical model, capital supply elasticities are set equal to labor supply elasticities. The analytical model indicated that while opportunities for end-of-pipe treatment lower the absolute costs of abatement policies, they have an ambiguous effect on the relative cost increase from the equity value neutrality (EVN) constraint. In contrast, achieving EVN involves first-order efficiency costs, even at the first increment of abatement. The chapter also describes all the policy experiments as permits policies, although the results apply also to tax policies generating the same emissions reductions. Under the assumptions of the numerical model, for any policy involving pollution permits there is an equivalent policy involving a pollution tax.
