Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent
Question:
Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO2 abatement standard. Further assume that the following SO2 abatement cost functions have been estimated by each country:
TACUS = 500 + 1.5(AUS)2
MACUS = 3 AUS
TACCAN = 1000 + 3(ACAN)2
MACCAN = 6 ACAN
where AUS and ACAN represent the percent of SO2 abatement achieved by the United States and Canada, respectively, and each TAC and MAC is measured in millions of dollars.
a. If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain.
b. Assuming a trading program is enacted, find the cost savings associated with a cost-effective abatement solution?
c. What must be the price of a tradeable permit to achieve the cost-effective abatement allocation?
Step by Step Answer:
a Under a uniform abatement standard A US A CAN 15 percent Therefore MAC US 315 45 million TAC US 50...View the full answer
Environmental Economics and Management Theory, Policy and Applications
ISBN: 978-1111826673
6th edition
Authors: Scott J. Callan, Janet M. Thomas
