Question

how emission reduction can lead to equimarginal principle? describe in graph aslo

Answer 1

Answer: The equimarginal principle states that total production to be distributed among sources in an approach that their marginal production cost are equalized. It requires that the different emission sources needs to controlled in such an approach that they have the similar marginal abatement costs. The intersection for two marginal costs of abatement is where economic efficiency is achieved, also termed to be equimarginal principle. Emissions which leads to high damages would be abated at low cost, thus causing an improvement in social welfare. In the enclosed graph the total costs of achieving the efficient emissions/ abatement level would be at where: C + G + K. The efficient emissions level, e* displays that the low abatement cost firm need to reduce more emissions compared to the high abatement cost firm GRAPH High Marginal Abatement Cost Firm 2$ Cap Low Marginal Abatement A Cost Firm н в K e* Carbon Abatement Tax %24 Tax