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Sample Problems Envener

This document contains 3 sample problems about carbon emission permits and taxes. The first problem asks to calculate a tax rate to internalize the external cost of pollution. The second problem involves calculating permit amounts, pollution abatement levels, abatement costs and determining the efficient number of permits for a country reducing emissions by 80%. The third problem similarly calculates permit amounts, abatement levels, costs and the efficient number of permits for a 25% reduction, involving two polluting firms.

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24 views2 pages

Sample Problems Envener

This document contains 3 sample problems about carbon emission permits and taxes. The first problem asks to calculate a tax rate to internalize the external cost of pollution. The second problem involves calculating permit amounts, pollution abatement levels, abatement costs and determining the efficient number of permits for a country reducing emissions by 80%. The third problem similarly calculates permit amounts, abatement levels, costs and the efficient number of permits for a 25% reduction, involving two polluting firms.

Uploaded by

cakesandfinances
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Sample problems

1. There is an overconsumption of coal because there is no enforcement of cleaning up carbon


emission. The current price is coal in the market is $70 per tonne. If the external cost of the air
pollution is $10 per tonne, what would be the tax rate to internalize the negative externality?

Unit tax of $10 per tonne

2. Country X has carbon emission of 5000 units per year. The country is involved with Paris Agreement
and will strive to reduce the emission of pollutants by 80%. The country has decided that the
appropriate strategy is a permit system. (These problems are all sequential)
a. How many permits should the government provide?
1000 permits
b. How many pollutants should be cleaned up every year?
4000 units
c. Assume that the marginal benefit of abatement and the marginal cost is as followed:

MB Abatement =500−0.5 Q Abatement

MC Abatement =2 Q Abatement

Find the total cost of abatement that would be done due to the permit system!
16,000,000 units
d. In terms of welfare, do you think this policy is efficient?
No
e. How many permits should be provided by the government to be efficient?
4800 permits

3. Country X has carbon emission of 1000 units per year. The country is involved with Paris Agreement
and will strive to reduce the emission of pollutants by 25%. The country has decided that the
appropriate strategy is a permit system. (These problems are all sequential)
a. How many permits should the government provide?
750 permits
b. How many pollutants should be cleaned up every year?
250 units
c. Assume that there are 2 coal power plants. Each contributes 50% of the pollution. The
marginal benefit of abatement and the marginal costs are as followed:

MB Abatement =1000−1.75 Q Abatement

MC Abatement , A =Q Abatement , A

MC Abatement ,B =3 Q Abatement , B

Find the number of pollutants that would be abated by firm A and firm B!
Firm A -> 187.5 units , Firm B -> 62.5 units
d. Find the equilibrium price for the permit

1
187.5
e. Find the total cost of abatement for firm A and firm B!
Firm A -> 17578.125, Firm B -> 5859.375
f. In terms of welfare, do you think this policy is efficient?
No
g. How many permits should be provided by the government to be efficient?
600 permits
h. At that “efficient” case, what would be the price of the permit?
300
i. Find the number of pollutants that would be abated by firm A and firm B!
Firm A -> 300 units , Firm B -> 100 units
j. Find the total cost of abatement for firm A and B!
Firm A -> 45,000 units , Firm B -> 15,000 units

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