8.-Congress is considering legislation to implement a tax on CO₂emissions.You have been hired as a consultant by the Aluminum Producers Association (APA) to help them figure out which of several approaches under consideration would be best for aluminum smelters .Approximately 7 tons ofCO₂are emitted for each ton of aluminum produced.The three approaches under consideration are:

1.A system in which firms would be required to purchase a license for each ton of CO₂There would be a fixed number of licenses available which would cap the amount of CO₂emissions (the Cap Level).The price of the licenses would be determined in an auction.A few targeted industries deemed essential to national security (including aluminum smelters) would be allocated licenses for free.The licenses would be tradable so that if a company in a targeted industry chose to produce at a level that resulted in more emissions than its allocation, the company could purchase more licenses from other companies that received an allocation but chose not to use them.

2.A tax of $25 on each ton of CO₂emitted for all CO₂emitters in the country . The $25 level for the tax was chosen because it is expected to bring emissions down to the Cap Level.

3.A fixed tax on each smelter (or other emitter) equal to $25 times however many tons of CO₂were emitted by that smelter in last year (2019).

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