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Roy Boyd and María E. Ibarrarán INTRODUCTION Much of the economic literature on energy policy and climate change concerns the relationship between them, and finding mechanisms that reduce the cost of emission reduction without losses in economic efficiency. Understanding how to lower the marginal social cost of energy production and consumption, involves discussing investment in new energy sources, pollution permit schemes, environmental taxes and trade-related energy policies. Energy and environmental policies, however, have an inequitable impact on the distribution of income. As we point out in our book Hacia el Futuro: Energy, Economics and the Environment in 21st Century Mexico (Ibarrarán and Boyd 2006), such equity issues cannot be ignored since all viable policies need to be thought of as fair and acceptable to the constituency of policy-makers. While all consumers can be expected to regard an increase in environmental quality as a positive change, the popularity of any environmental policy depends upon whether it is perceived as spreading costs equitably across income groups. This is especially true in developing countries where a large portion of the general population lives at or below the poverty line, and where environmental improvement is often at odds with economic development. Mexico is a country with severe income inequality, vast energy resources and increasing environmental problems. Historically, the distribution of income in Mexico has been highly skewed with relatively large Gini coefficients (0.52 in 1996, versus 0.41 for the United States in 1997; CIA 2002), and pockets of severe poverty. The...