Apr 27, 2023
It will test your ability to model a
tradeable permit system where the two firms considered are VERY different: both in terms of their baseline emissions
and their abatement costs. If you complete this activity in its entirety, you will demonstrate a strong grasp of how
regulators set both quantity and price regulations, how this relates to the marginal abatement costs of firms, and how
the regulator’s model reflects some of the same information as the firm model.
Note: Some of the results in this problem set are not whole numbers (e.g., 1, 2, 3, etc.). You will need to approximate
the results (e.g., 1.25, 1.5, 1.66, 1.75, etc.) in some cases.
Suppose we have two oil refineries in society. Oil Refinery 1 is bigger than Oil Refinery 2. Oil Refinery 1 emits 20
million tons of CO2 and it is less costly for this firm to abate. Oil Refinery 2 emits half as much CO2, 10 million tons,
and it is more costly for this firm to abate.It will test your ability to model a
tradeable permit system where the two firms considered are VERY different: both in terms of their baseline emissions
and their abatement costs. If you complete this activity in its entirety, you will demonstrate a strong grasp of how
regulators set both quantity and price regulations, how this relates to the marginal abatement costs of firms, and how
the regulator’s model reflects some of the same information as the firm model.
Note: Some of the results in this problem set are not whole numbers (e.g., 1, 2, 3, etc.). You will need to approximate
the results (e.g., 1.25, 1.5, 1.66, 1.75, etc.) in some cases.
Suppose we have two oil refineries in society. Oil Refinery 1 is bigger than Oil Refinery 2. Oil Refinery 1 emits 20
million tons of CO2 and it is less costly for this firm to abate. Oil Refinery 2 emits half as much CO2, 10 million tons,
and it is more costly for this firm to abate.

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