Question

A carbon emission tax is increasingly recommended a policy to address člimate change Under a carbon tax, emitters can discharge carbon into the atmosphere as long as they pay the government a tax for every unit of carbon released (typically defined as a tor) Suppose is discharger is releasing 20 tons of carbon. The marginal cost of reducing carbon (the cost to abate the incremental ton) is shown in the table below. If the government imposed a $20/ton emission tax, how much carbon would this firm release? Marginal Abatement Cost $/ton) Carbon Emissions (tons) 20 19 18 17 16 15 14 13 12 Carbon Reduced (tons) $10 $11 $12 $13 $15 $18 $22 $27 $32 $38 $44 $50 3 4 8 10 10 12 O 20 tons. Firms have alot of money to avoid reducing emissions O 19 tons O 18 tons O 17 tons O 16 tons O 15 tons O 14 tons O 13 tons O 12 tons O 11 tons 10 tons 9 tons O8 tons

Answer 1

The firm would release 14 tons of carbon. That is, the taxes would reduce carbon emissions by 6 tons. The firm still produces 14 tons because the abatement costs are really high at lower levels of carbon emissions. Thus, it is willing to pay the taxes. At 14 tons, the the abatement cost 18 is lower than the tax it would have to pay for another ton of emission. Thus, it releases 14 tons of carbon.