Upcoming in Class Quiz #2 Next Wednesday

Homework #4 – Oct. 8th Exam #2 – Oct. 8th

Extra Credit Writing Assignment Oct. 17th

Writing Assignment Due Oct. 24th

Pollution Types Uniformly Mixed Pollutants – a pollutant

emitted by many sources in a region resulting in relatively uniform concentration levels across the region (SOx, CO2)

Non-uniformly mixed pollutants – pollutants that have different effects in different areas, depending on where they are emitted (water pollution from factories, sewage, and runoff from agriculture)

Policies Standards (Non-uniformly mixed

pollutants)

Taxes (Uniformly Mixed Pollutants)

Permits (Uniformly Mixed Pollutants)

A Transferrable Pollution Permit System

Firms are allocated X number of permits

A permit represents the right to pollute 1 ton of CO2.

Firms can buy and sell permits. But firm sells their permits, they can no longer pollute and must control their pollution instead.

Example – 2 Polluting Sources

Coal Power Plant 15 tons of CO2

• Natural Gas Power Plant

• 15 tons of CO2• Suppose we determine that to maintain clean healthy air, we need to reduce emissions by 15 tons total.

• Who should reduce emissions? By how much?

Cost-Effective Allocation of a Uniformly Mixed Pollutant

Cost-Effective Allocation Minimizes the control cost between

the two sources Cost Effectiveness Equimarginal

Principle• Cost of achieving a given level of reduction

is minimized when• MC1=MC2=MC3=..=MCX

• Marginal costs of all emitters are equal

Example – 2 Emitters MCcoal = 10 + ½ * Qcoal-CO2

MCng = 5 + Qng-CO2

Each firm currently emits 100 tons of CO2

The government wants the to reduce overall emissions to 150 tons of CO2

QCO2 = Qcoal-CO2 + Qng-CO2

Issuing Permits Lottery (equitable)

Grandfathering (politically appealing)

Auction (government revenue generated)

Example – 2 Emitters MCcoal = 6 + 1/3 * Qcoal-control

MCng = 2 + Qng-control

Each firm currently emits 100 tons of CO2

The government wants the to reduce overall emissions to 140 tons of CO2

Qcontrol = Qcoal-control + Qng-control

Suppose a tax of $30 is implemented instead

What is the control cost to each firm?

What is the revenue to the government?

Upcoming in Class Quiz #2 Next Wednesday

Homework #4 – Oct. 8th Exam #2 – Oct. 8th

Extra Credit Writing Assignment Oct. 17th

Writing Assignment Due Oct. 24th