rw 1 Example Pollution Problem èSix firms emit the pollutant èTotal emissions from all firms equals 600 tons èEach firm has six actions (A-F) it could take to reduce emissions FActions may differ between firms èEach action can be used to eliminate up to 10 tons of emissions FExample: Firm 2 could use action A to eliminate 5 tons èEach action has a specific cost per ton eliminated FExample: Firm 2’s action A costs $6 per ton; eliminating 5 tons costs $30 èTo protect public health, emissions need to be reduced by 30% to 420 tons

rw 2 Command and Control Policy 1: Equal Reductions èEach firm must eliminate 30 tons of its emissions èFirms can choose the lowest cost method èQuestions: FWhich actions should your firm take? FWhat is the firm’s total cost of abatement?

rw 3 Command and Control Policy 2: Proportional Reductions èEach firm must eliminate 30% of its emissions èFirms can choose the lowest cost method èQuestions: FWhich actions should your firm take? FWhat is the firm’s total cost of abatement?

rw 4 Market Based Policy 1: Emissions Fee èEach firm must pay $11 on each ton emitted èFirms can clean up, pay the fee, or do some of both èFirm’s goal is to keep costs low èQuestions: FWhich actions should your firm take? FHow much does it reduce emissions? FWhat is the cost of reducing emissions? FHow much does the firm pay in fees? FWhat is the total cost imposed by the policy?

rw 5 Market Based Policy 2: Tradable Permits èEach firm must own a permit for each ton emitted èFirms are granted permits for 30 tons less than original emissions èThe permits can be bought or sold èQuestions: FHow many permits would your firm want to BUY at each of the following prices: x$1, $3, $5, $7, $9, $11, $13, $15, $17 FHow many permits would your firm want to SELL at each of the prices above? FFill in the answers on the worksheet

rw 6 Lessons Learned èCommand and control policies FGenerally do not minimize cost èEmissions fees FCleanup done at minimum cost but … FFees on remaining emissions may be immense èTradable permits FA bit more complicated to use FCan get cleanup at minimum cost