Question

1. The marginal cost of CO2 emissions reduction differ substantially across Canadian provinces. Suppose that the Canadian federal government passes a policy that requires each Canadian province to reduce its CO2 emis- sions by 15% by 2020. Does this policy satisfy the equimarginal principle? Clearly motivate your answer.

Answer 1

No. This is because according to the equimarginal principle , the marginal abatement cost per dollar of last unit of pollution abated should be equal across all the provinces. When these provinces are required to reduce pollution level by the same amount, those with higher MAC and those with lower MAC all will have to reduce emissions by same amount, which is inefficient. In accordance with the equimarginal principle, provinces with the lower marginal abatement cost should produce more pollution than provinces with higher marginal abatement cost.