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This article analyzes the impacts of debt relief on production and pollution when countries are characterized by differences in their technology and by heterogeneous preferences, through the discount factors and the environmental sensitivities. We develop a two-country overlapping generations model with environmental externalities, public debts and perfect mobility of assets. GHG emissions arise from production, but agents may invest in private mitigation to abate pollution. The overall debt level remaining unchanged, we consider a decrease of the debt of the poor country balanced by an increase of the richer country's debt. We show that debt relief for polluting poor countries, characterized by a low productivity, makes it possible to engage these countries in the process of pollution abatement if they are sufficiently sensitive to environmental quality. Capital in both countries can even increase. We conclude that debt
crisis in the richest countries should not compromise foreign aid.
