Reducing Pollution Levels by the OECD Countries: Who Should Bear the Brunt?

Abstract

We apply Shephard’s dual lemma and the concept of multi-output distance function to the estimation of marginal abatement costs of CO2 emissions reduction in the developing part of the East Asian and Pacific region, also including Korea and Japan. We find that abatement costs are the highest for Japan, while they are the cheapest for the small island states and Mongolia. While the social planner would allocate the task of reducing the regional emissions levels by 30% (stipulated by the Copenhagen accord) to countries with the lowest marginal abatement costs, this approach will require complete elimination of industrial sector in most of the region’s countries. We therefore suggest a more realistic scenario that involves placing a cap on the maximum amount of reduction by each individual country. In the long run, we argue that command and control policies of setting reduction targets will be less effective compared to the ones aimed at the reduction of marginal abatement costs.