A company's marginal costs for emission reduction (MAC) can be expressed as MAC = 2A, where A is abatement in tonnes. MAC is expressed in USD. Assume that the company's total emissions in the starting position is 100 tons. a) Assume that the authorities now decide on a limit value which means that the company may not emit more than 30 tonnes. What is the total cost for the company to live up to this limit? b) A research team consisting of both ecologists and economists concludes that the marginal benefit (per tonne) of reducing emissions is constant and equal to USD 100. How high is the socio-economically optimal level of emissions (for the individual company) given this information? c) Assume that a system for trading in emission rights is established. The company in question is allocated 30 emission rights (where each right corresponds to one tonne). If the price of emission rights is USD 120 (per tonne), will the company be a buyer or a seller of emission rights and if so, how many rights will it buy / sell? Be sure to justify your answer!
A company's marginal costs for emission reduction (MAC) can be expressed as MAC = 2A, where A is abatement in tonnes. MAC is expressed in USD. Assume that the company's total emissions in
the starting position is 100 tons.
a) Assume that the authorities now decide on a limit value which means that the company may not emit more than 30 tonnes. What is the total cost for the company to live up to this limit?
b) A research team consisting of both ecologists and economists concludes that the marginal benefit (per tonne) of reducing emissions is constant and equal to USD 100. How high is the socio-economically optimal level of emissions (for the individual company) given this
information?
c) Assume that a system for trading in emission rights is established. The company in question is allocated 30 emission rights (where each right corresponds to one tonne). If the price of emission rights is USD 120 (per tonne), will the company be a buyer or a seller of emission rights and if so, how many rights will it buy / sell? Be sure to justify your answer!
Step by step
Solved in 5 steps with 4 images
