Question 2: Cap 85 Trade An economy has two types of rms that contribute GHG emissions to the atmosphere: coal power plants emit 10 Mt COnyear per rm and cement factories emit 1 MtCO2 / year per rm {where 1 MtCO2fyear = 1,000,000 tons of carbon dioxide per year). There are 100 coal power plants and 300 cement factories. The two types of rms are dlerent, but within each sector rms are the same. Total abatement costs for each coal power plant are 01(31) = Su where :11 is abatement for a coal power plant, measured in MtCOZ f year. Total abatement costs for each rm in the cement industry are 02(32) = 632 + 7.533. 1. Calculate the overall baseline emissions of the economy. If annual emissions should be reduced to 940 Mt C302,?r year, how many Mt 002 have to be abated? The government decides to implement a cap-and-trade system. It sets an economy-wide cap at 940 MtC02 f year and auctions 0E permits. Assume that there is perfect competition on the permit market. 2. At what price do permits trade? How many M13002 of permits do rms in each of the two sectors purchase? 3. Assume that the total abatement costs in the coal industry are Cl {o1} = 2:11 rather than the above costs. How many MtC02 of permits does the coal sector purchase? How many MtC02 of permits does the cement sector purchase