Cap and Trade Example

Cap and Trade Example - R* = Reduction (abatement) attained...

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Assume: P* (cap) = 3.00 Euros per metric ton Country R Req P Req (at R Req ) R* R Req - R* MAC - P* Cost per Year Germany 10,000,000 2.20 € 12,000,000 -2,000,000 -0.80 € 800,000.00 € Sweden 7,500,000 5.50 € 5,500,000 2,000,000 2.50 € 2,500,000.00 € ENVT 0945 - Spring 2010 Cap And Trade Exercise All values in Euros The Marginal Abatement Cost (MAC) is the cost of abating (reducing) the emission of CO 2 by one additional metric ton (1000 kg) per year. This value is directly proportional to the total amount reduced. R Req = Reduction (abatement) required.
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Unformatted text preview: R* = Reduction (abatement) attained at the cap (P*) Analysis: The net reduction (abatement) of tons/yr of CO 2 for Sweden is equal to the available additional abatement available in Germany ("room under the cap"). The actual reduction cost for Sweden is 2,500,000 Euros and the cost of abatement in Germany for the same amount of abatement is 800,000 Euros. This economic condition permits a market to develop between the two countries for the trading of emission rights....
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