Efficiency and Distribution in Computable Models of Carbon Emission Abatement

The separability between efficiency and equity is an underlying assumption in most of the computable general equilibrium (CGE) models that have hitherto been used, to assess the economic costs of international agreements to reduce carbon emissions. The analytical correctness of this hypothesis as well as its precise policy implications have generated some debate in the literature. In this context, this paper aims at clarifying the analytical conditions, which determine cost efficiency in usual CGE abatement models. Some illustrative simulation results obtained with the OECD/GREEN model are provided. Then, it is shown under what conditions the equalisation of marginal carbon abatement costs across regions is not a necessary condition for achieving Pareto efficiency and, in what sense the equity and efficiency issues cannot be separated. The consequences of this result for policy is briefly discussed