1.  Quiz #2 Next Wednesday  Homework #4 – Oct. 8th  Exam #2 – Oct. 8th  Extra Credit Writing Assignment Oct. 17th  Writing Assignment Due Oct. 24th

2.  Uniformly Mixed Pollutants – a pollutant emitted by many sources in a region resulting in relatively uniform concentration levels across the region (SOx, CO2)  Non-uniformly mixed pollutants – pollutants that have different effects in different areas, depending on where they are emitted (water pollution from factories, sewage, and runoff from agriculture)

3.  Standards (Non-uniformly mixed pollutants)  Taxes (Uniformly Mixed Pollutants)  Permits (Uniformly Mixed Pollutants)

4.  Firms are allocated X number of permits  A permit represents the right to pollute 1 ton of CO2.  Firms can buy and sell permits. But firm sells their permits, they can no longer pollute and must control their pollution instead.

5.  Coal Power Plant  15 tons of CO 2 Natural Gas Power Plant 15 tons of CO 2 Suppose we determine that to maintain clean healthy air, we need to reduce emissions by 15 tons total. Who should reduce emissions? By how much?

7.  Minimizes the control cost between the two sources  Cost Effectiveness Equimarginal Principle Cost of achieving a given level of reduction is minimized when MC 1 =MC 2 =MC 3 =..=MC X Marginal costs of all emitters are equal

8.  MC coal = 10 + ½ * Q coal-CO2  MC ng = 5 + Q ng-CO2  Each firm currently emits 100 tons of CO 2  The government wants the to reduce overall emissions to 150 tons of CO 2  Q CO2 = Q coal-CO2 + Q ng-CO2

9.  Lottery (equitable)  Grandfathering (politically appealing)  Auction (government revenue generated)

10.  MC coal = 6 + 1/3 * Q coal-control  MC ng = 2 + Q ng-control  Each firm currently emits 100 tons of CO 2  The government wants the to reduce overall emissions to 140 tons of CO 2  Q control = Q coal-control + Q ng-control

11.  What is the control cost to each firm?  What is the revenue to the government?

12.  Quiz #2 Next Wednesday  Homework #4 – Oct. 8th  Exam #2 – Oct. 8th  Extra Credit Writing Assignment Oct. 17th  Writing Assignment Due Oct. 24th