Pollution permit market for carbon emissions

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Reference no: EM131163770

The state of California has a pollution permit market for carbon emissions, where all large firms must have a permit for each ton of carbon emissions they generate. The California state government sets the supply of permits and large electricity producing firms comprise the bulk of firms participating in this market. Suppose the government of California wants to lower the quantity of carbon emissions coming from the electricity sector by lowering the supply of permits. Using graphs of the market for carbon emissions (permits) and the market for electricity, illustrate how a lowering of the supply of carbon permits will affect

a) the carbon price in California

b) the price of electricity that consumers pay.

Reference no: EM131163770

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