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Pollution Control and Permit Market Analysis in Illinois

Analyze the permit market for pollution control in Illinois to reduce emissions from two sources, explore permit trading, tax implications, technological changes, and their impacts on total control and pollution costs for the firms.

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Pollution Control and Permit Market Analysis in Illinois

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  1. Upcoming in Class Homework #4 – Oct. 8th Exam #2 – Oct. 8th Extra Credit Writing Assignment Oct. 17th Writing Assignment Due Oct. 24th

  2. Permit Allocation • 2-emitters pollute • Source 1 – polluting 700 • Source 2 – polluting 300 • Gov’t wants to reduce to 800 tons of pollution using a permit market • Marginal Control Cost where Q is quantity controlled. • MCC(1)=1Q1 • MCC(2)=4Q2

  3. Permit System Assume the government distributes the permits through a grandfathering system. 75% of the permits to source 1 and 25% of the permits go to source 2. Which firm buys permits and which firm sells permits? How many permits are traded? At what price? What is the total control cost for firm 1 and for firm 2? What is the total cost of pollution for firm 1 and for firm 2?

  4. Under a Tax What should the tax be set at to reach the same level of pollution as the permit system? What is the total control cost for firm 1? What is the total control cost for firm 2? What is the total cost of pollution for firm 1? What is the total cost of pollution for firm 2?

  5. The Impact of Technological Change

  6. Permit System • Assume firm 1 improves its technology of controlling pollution. Marginal Control Cost where Q is quantity controlled. • MCC(1)=0.5 Q1 • MCC(2)=4Q2 • Which firm buys permits and which firm sells permits? How many permits are traded? At what price? • What is the total control cost for firm 1 and for firm 2? • What is the total cost of pollution for firm 1 and for firm 2?

  7. SO2 Emission in IL

  8. NOx Emissions in IL

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