Carbon Neutrality Targets and Optimal Policy: a Multicriteria Analysis

We analyze the role of public policy and individual behavior in determining the successful implementation of climate neutrality targets. Individual agents choose whether to act green in order to maximize their utility which depends on both environmental and social considerations. Policymakers determine the optimal incentive scheme (via subsidies) to favor individuals to behave green and ensure that the targets are effectively achieved within a certain time horizon. Policymakers face thus a multicriteria problem in which the short run cost of mitigation and the long run deviation from the target are traded off. We determine its optimal solution via scalarization and ε-constraint, showing the equivalence between such two setups, and that the intensity of the optimal subsidy depends both on individual and social factors. In particular, the relative magnitude of individual and social factors determines the deviation from the carbon neutrality target which is optimal to tolerate in the long run.