Negotiation excercise wrap up

Negotiation - Other assumptions • Each utility purchases scrubbers to achieve max CO 2 reduction(90,000 tons/utility/year – Expand its rate

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Negotiation Exercise Wrap Up Professor Doug Cerf Donald Bren Graduate School of Environmental Science and Management Environmental Risk Management (ESM 286) Winter 2008
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Printed on recycled paper-actually better, not printed at all Cost Minimization Assume rate payers have elastic demand for electricity Result: market clearing price between $200 and $250 per ton of SO 2 . Demand of permits equaled supply at 70,000. In phase1: Utility #1 will sell 40,000, scrub and over comply Utility #2 will purchase 30,000 Utility #3 will sell 30,000, switch coal and over comply Utility # will purchase 40,000
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Printed on recycled paper-actually better, not printed at all Cost Minimization In phase 2 (50% of allowances available): Utility #1 will sell 15,000, scrub and over comply Utility #2 will purchase 25,000, partial scrub Utility #3 will purchase 10,000, switch coal Utility #4 will sell 20,000, scrub and over comply
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Printed on recycled paper-actually better, not printed at all
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Unformatted text preview: Other assumptions • Each utility purchases scrubbers to achieve max CO 2 reduction (90,000 tons/utility/year) – Expand its rate base for the long term as a result of the capital investment and pass through of costs to customer – No demand for allowances (in the short term) • Not interested in selling allowances because revenue is passed to consumers – Worst financial (best environmental) scenario for ratepayers – Assumes demand for electricity is inelastic Printed on recycled paper-actually better, not printed at all Southern Co. Acid Rain Case • Least cost alternative – Burn and Buy – Scrub and sell – Switch to low sulfur • Cash Flow analysis – Capital Budgeting (NPV) Analysis – How much would we have to deposit now to cover each alternative – Internal Rate of return is negative • Assumptions – Price for permits, scrubbers and coal • Qualitative items that can not be included in the analysis...
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This note was uploaded on 08/06/2008 for the course ESM 286 taught by Professor Cerf during the Winter '08 term at UCSB.

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Negotiation - Other assumptions • Each utility purchases scrubbers to achieve max CO 2 reduction(90,000 tons/utility/year – Expand its rate

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