The economics of international emissions trading

It's possible for a country to reduce emissions using a Command-Control approach, such as regulation, direct and indirect taxes. But that approach is more costly for some countries than for others. That's because the Marginal Abatement Cost (MAC) ? the cost of eliminating an additional unit of pollution ? differs by country. It might cost China $2 to eliminate a ton of CO2, but it would probably cost Sweden or the U.S. much more. International emissions-trading markets were created precisely to exploit differing MACs.


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