The following table represents the business as usual (no abatement) situation for emissions of greenhouse gases in tonnes and the marginal abatement cost functions for two oil refineries.

	Initial Emissions	Marginal Abatement Cost
Firm 1	2,000	MAC1 = 2A1
Firm 2	750	MAC2 = 1.5A2
Total	2,750	n/a

(a) The regulatory authority is considering implementing a cap and trade scheme to abate the total emissions of the two refineries by 14 percent. Under such a scheme, how many permits would need to be issued and for what price would they trade? How much abatement will take place at each firm?

(b) Assuming the permits are initially distributed for free based on each firm's share of initial emissions, show the initial permit allocation and any permit purchases/sales needed to reach the final allocation of permits that will result from this scheme.

(c) Calculate TAC and TCC by firm and the industry total under this scheme. Show your results in a table.

(d) Now suppose that instead of a cap and trade scheme the regulator decides to implement an emission tax to accomplish the same 14 percent abatement target. What tax should be charged to accomplish this?

(e) Calculate taxes paid, TAC and TCC by firm and in total under this scheme. Show your results in a table and briefly compare to the cap and trade scheme.

(f) Briefly explain why regulators might prefer the emission tax to the cap and trade scheme as described here.