Suppose there are two firms, A and.B, that each currently release. 4.tonnes of CO2 emissions.per week, resulting in 8 tonnes of CO2 emissions.per week. A.study shows that total economic surplus can be increased by reducing the total.level of emissions by 4 tonnes of CO2 emissions.per week. The cost to. each of the two firms of reducing their emissions is shown in the table below. Introduce laws requiring all firms to reduce their CO2 emissions. by 2 tonnes .per week. Introduce a carbon tax of $30.per tonne of CO2 emissions. The government will issue each firm.with two permits. Each. permit a firm.holds allows it to emit 1 tonne of CO2 emissions.per week. .If a firm. does not hold enough. permits. it must reduce its .CO2 emissions. . .Firms.can trade the permits. with one another. Explain how each policy will work to reduce pollution. How successful each policy would be if the costs of removing each tonne of CO2. per. week twice as high as what was initially thought.~ Hints - You may want to convert each firm's .Total Cost of reducing CO2 into the Marginal Costs of reducing CO2 so that you can determine how they will react to policy b and.c. A carbon tax gives will introduce a benefit for firms.when reducing pollution.