1. Interactive Exercise

2. Scenario • Engineer or mid-level manger in a firm • Six firms: 1 ... 6 • Know of an action that would reduce emissions • Six possible actions per firm: A ... F • Think of them as efficiency improvements • The action could reduce up to 10 tons of emissions • The action has a specific cost per ton • Example: $8 per ton

3. Simulation • Randomly distribute initial information • Slips will show: firm, action, cost per ton • Form into teams for each firm • Assemble and digest information • Determine how firm would react to policies • Command and control (2 cases) • Emissions fee or tax • Tradable emissions permits

4. Initial Emissions

5. Policy 1: Equal Reductions • Each firm must eliminate 30 tons of its emissions • Firms can choose the lowest cost method • Questions: • Which actions should your firm take? • What is your firm’s total cost of abatement?

6. Policy 1 results

7. Policy 2: Proportional Reductions • Each firm must eliminate 30% of its emissions • Firms can choose the lowest cost method • Questions: • Which actions should your firm take? • What is the firm’s total cost of abatement?

8. Policy 2 results

9. Policy 3: Emissions Fee • Each firm must pay $17 on each ton emitted • Firms can clean up, pay the fee, or do some of both • Firm’s goal is to keep costs low • Questions: • Which actions should your firm take? • How much does it reduce emissions? • What is the cost of reducing emissions? • How much does the firm pay in fees? • What is the total cost imposed by the policy?

10. Policy 3 results

11. Policy 4: Tradable Permits • Each firm must own a permit for each ton emitted • Firms are granted permits for 30 tons less than original emissions • The permits can be bought or sold • Questions: • How many permits would your firm want to BUY at each of the following prices: • $1, $3, $5, $7, $9, $11, $13, $15, $17,$19 • How many permits would your firm want to SELL at each of the prices above? • Fill in the answers on the worksheet

12. Policy 4 permit market: demand

13. Policy 4 permit market: supply

14. Policy 4 permit market

15. Policy 4 trading and abatement

16. Policy 4 costs

17. Summary

18. Why the differences across firms? • Initial emissions differ • Especially important for proportional reduction or taxes • Abatement options differ • Abatement costs differ as a result • Here, the six firms fell into three categories • Firms 2 & 5: lowest cost at first but then rising • Firms 3 & 6: higher initial cost but rises more slowly • Firms 1 & 4: high and rapidly rising costs