(Parts A-E): The Graph below illustrates 2 Coal fired Power plants (A and B, loc

Question

(Parts A-E): The Graph below illustrates 2 Coal fired Power plants (A and B, located in close physical proximity, who both emit large quantities of fine Particulate Matter PM10. 6) MACA MACB 300 100 100 80 200 300 400 200 300 600 Emissions (.000 tons/year) Emissions (,000 tons/year) millions Letter millions $10 $10 Letter $1 $8 55 2 512 How much are each emitting prior to any regulation? A) Looking at the MACs for the 2 plants how would you generalize and describe their relative Marginal Abatement costs? B seems to be more efficient than A Based on their MACit would be more expensive to clean up Source A. Without any regulation A would emit 400,000 emissions per y together B than Source earand B would emit 600,000 per year so 1000000

Explanation / Answer

B). So, if EPA decided to charge a emission fee of $100 per ton of PM10 emitted per year. So, under this situation each firm will decide how much to reduce emission by using MCA=100 condition. So, “plant-A” will reduce emission to “300(000 tons/year)” and “Plant-B” will reduce it to “200(,000 tons/year).

So ,as we can see that now the total reduction is “500(,000 tons/year)”, which is exactly the 50% of the previous emission,=> it reflect the 50% reduction of the emission.

C).

So, given this situation the “total cost” of this reduction in emission for “plant-A”, be “t” and for “plant-B” it is “x+y+z”.

So, for the “Plant-A”, the total cost be “100*300 + t”, where “30,000(,000 tons/year)”, be the total emission charged and t=$5 million be the total abatement cost. Now, for the “Plant-B”, the total cost be “100*200 + x+y+z”, where “20,000(,000 tons/year)”, be the total emission charged and x+y+z=$1+$8+$12=$21 million be the total abatement cost.

Now, if the EPA want the each firm will reduce the emission by 50%, =>”Plant-A” will reduce the emission to 200(,000 tons/year) and “Plant-B” will reduce the emission to “300(,000 tons/year)”. So, the total abatement cost is “r+s+t” that is “10+10+5=$25million” for “plant-A”. Now, the same for “Plant-B”, is “z=12. So, the total cost for society is “25+12=$37”.

D).

So, according to the principal of “equimarginal utility” the optimum level of emission will be determined by the MCAa and MCAb. As we know that each firm’s MCA is not same for some firm it is more and for some other firm it is low, so according to this principal, a firm having higher MCA will reduce emission less compared to firm’s having MCA less. So, that given goal to reduce pollution will be satisfied and the total cost of the emission will also be lower.

So, in the given example if we apply this principal then the “A” will emit to “300” and “B” will emit to “200”. So, the abatement cost for “A” is “t=5” and for “B” it is “x+y+z+=21”. So, the total cost is “$26 million”.

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