Find the cost-efficient abatement quantities

Reference no: EM133496643

Problem

Suppose there are two countries (A, B). Each producer faces the following abatement costs (in thousands of dollars per gigaton of CO2 abated): MACA = 2.4qA MACB = 1.6qB Each country produces 25 gigatons of CO2 every month (thus they produce a total of 50 gigatons).

Question I. Suppose the a global agreement proposes to achieve a 30 gigaton reduction (from 50 to 20) via uniform standards. Find the total cost of this policy.

Question II. Find the cost-efficient abatement quantities that achieve a 30 gigaton reduction. What are the cost savings compared to the uniform standard in part (I)?

Question III. Suppose the proposed agreement was to cut the total CO2 emissions in half (from 50 total to 25 total) via a cap-and-trade mechanism. If they issue 10 permits to country A and 15 permits to country B, will firms trade? How many permits will be traded?

Question IV. Quantify how much better off both countries are via tradable permits than if they were given the permits as above, but could not trade.

Reference no: EM133496643

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