Question

Soot is considered the second largest cause of global warming. It is emitted from a variety of sources, but most notably from vehicles. Damian owns a logistics company that has a very large fleet of diesel trucks. The Australian Government recently introduced legislation that charges companies based on the amount of emissions of their fleets that are above 5% soot. They can either opt to meet the 5% target and pay no permit cost (Process D), or purchase permits entitling them to pollute in excess of 5% (but this will also incur a cost to modify their fleet using Processes A, B, and C).

Process	A	B	C	D
Soot emissions (%)	10	8	6	5
Costs to modify Damian’s fleet with Process ($ thousand)	0	100	700	1200
Permit cost ($ thousand)	1500	1100	300	0

 

Type T for True or F for False after every statement:

1. Damian will implement process D. 

2. If Damian selects the process of least cost for him, the financial cost to society would be greater than if Damian implements process B. 

3. The Government’s decision not to completely ban the emission of soot indicates they do not believe a negative externality is associated with soot emissions.