The attached represents Dakota's current situation regarding the costs of allowances vs. scrubbers. Assume in this example that Dakota can purchase sufficient allowances to handle its expected pollution. In other words, it is not in a situation where its total emissions exceed the number of allowances available. Consider the decision to install scrubbers to be irreversible. Note that the $200 scrubber cost is per ton of sulfur dioxide emissions, per year.

This utility loses {has higher costs than otherwise) whenever the allowance price is less than the cost of scrubbing sulfur dioxide. The utility wins (has higher revenues) when allowance prices are greater than the cost of scrubbing.

Figure 1. Scrubber cost vs. selling al