Question

Q.4. (45 Points) Suppose that under the Michigan’s voluntary emission trading program, the objective for the two major firms in an urban area is a 50 percent reduction in carbon monoxide (CO) emissions from 120 units to 60 units. Each firm face the following costs: Firm 1: TAC1=2000+0.6(A1) 2 MAC1=1.2A1 Firm 2: TAC2=1000+0.2(A2) 2 MAC2=0.4A2, where A1 and A2 represent the percentages of CO emission abatement achieved by Firm 1 and Firm 2, respectively, and TAC and MAC are measured in thousands of dollars. a. Calculate the TAC and MAC for ach firm if a uniform abatement standard were used. b. Based on your answer to part a, is there an economic incentive for the sources to participate in the trading program? Explain. c. Quantify the cost savings associated with a cost-effective abatement allocation that could be achieved through trading. d. Calculate the demand for pollution permits for each firm. e. Write down the market demand for pollution permits and market supply for permits. f. Calculate the permit price. g. Calculate the abatement levels and emission levels of each firm. h. If the government issues 60 allowances (tradable permits) and equally distribute them among the firms, write down which firms is a buyer and which firm is a buyer and which firm is a seller?

Answer 1

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this man s Jhatr abalement- atloca-tron ir not cost eedtie. te monin

A1-100-ha → . A- To ayondsy veshold en th.fomnt oes

Com Herd QSyo 180. = 3720 She HACJo