The peat deposit of Nigula bog covers about 2,000 hectares. The annual harvest f

Question

The peat deposit of Nigula bog covers about 2,000 hectares. The annual harvest from one hectare is about100 tonnes and one tonne of peat contains 3 megawatt hours (MWh) of energy Assume that peat is sold on a competitive market and the market price is Euro 30 per tonne. The nearby combined heat and power plant buys the annual peat production and earns Euro 50 per MWh from sales of electricity and heat. Other inputs cost Euro 10 euro per MWh. 2. A regulation was applied to reduce sulphur oxides on national level. The researchers evaluated MAC and MD functions for the pollutant: MAC = 60-4E, MD= 2E. a. Determine socially efficient level of pollution and graphically illustrate it MAC, S MD, S tonnes per month 4 10 12 15 b. Suppose that no emissions are controlled and 15 tonnes per month are emitted into the air i. Compute total damage (TD) at 15 tonnes per month ii. Compute total abatement cost (TAC) at 15 tonnes of output ii. Compute net social cost c. Compute i. TD ii- ++--, TAC and net social cost for the socially efficient level of pollution ii. Compare (TDe, TACe) with those calculated for zero pollution control. Find value, the society saves due to reduction ofemissions.

Explanation / Answer

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Emissions, tonnes per month MAC MD 0 60 0 2 52 4 4 44 8 6 36 12 8 28 16 10 20 20 12 12 24 14 4 28 15 0 30 b) (i)we can derive the TAC and TD by integrating the MAC and MD function wrt E. TAC = 60-4E dE TAC =60E-4E2/2+C Put E = 0, TAC =60 This implies C= 60. TAC = 60+ 60E-4E2/2 TAC at E = 15 is 60+900-450. TAC = 510 ii) TD = 2E dE TD = 2E2/2 +C TD = E2 TD at E = 15. TD = 225 iii) Net Social Cost = TAC -TD Net Social Cost = 60+60E-E2

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