indirect taxes. The cost of that approach differs between countries because the Marginal Abatement Cost Curve (MAC)—the cost of eliminating an additional unit of pollution—differs by country. Pricing the externality An emissions trading scheme for greenhouse gas emissions (GHGs) works by establishing property rights for the atmosphere. The atmosphere is a global public good, and GHG emissions are an international externality (p. 21). The emissions from all sources of GHGs contribute to the overall stock of GHGs in the atmosphere. In the cap-and-trade variant of emissions trading, a limit on access to a resource (the cap) is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered including any permits traded within the cap. The environmental integrity of emissions trading depends on the setting of the cap, not the decision to allow trading. Efficiency and equity For the purposes of analysis, it is possible to separate efficiency (achieving a given objective at lowest cost) and equity (fairness). Economists generally agree that to regulate emissions efficiently, all polluters need to face the full costs of their actions (that is, the full marginal social costs of their actions). Regulation of emissions that is applied only to one economic sector or region drastically reduces the efficiency of efforts to reduce global emissions. There is, however, no scientific consensus over how to share the costs and benefits of reducing future climate change (mitigation of climate change), or the costs and benefits of adapting to any future climate change (see also economics of global warming). Carbon leakage A domestic ETS can only regulate the emissions of the country having the trading scheme. In this case, GHG emissions can "leak" (carbon leakage) to another region or sector with less regulation (p. 21). Leakages may be positive, where they reduce the effectiveness of domestic emission abatement efforts. Leakages may also be negative, and increase the effectiveness of domestic abatement efforts (negative leakages are sometimes called spillover) (IPCC, 2007). For example, a carbon tax applied only to developed countries might lead to a positive leakage to developing countries (Goldemberg et al., 1996, pp. 27–28). However, a negative leakage might also occur due to technological developments driven by domestic regulation of GHGs. This can help to reduce emissions even in less regulated regions. Competitiveness risks One way of addressing carbon leakage is to give sectors vulnerable to international