What is the annual total cost of the emission abatement

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Question: NOz, is a pollutant emitted in the US by aviation companies and electric companies. For electric companies, the aggregate total cost of abatement is TC = 5Qe + 2.5Qe^2, and the marginal cost of abatement is MC = 5 + 5Qe, where Qe is the aggregate amount of NOz in millions of tons abated by electric companies. For aviation companies, the aggregate total cost of abatement is TC = 1.25Qa^2, and the marginal cost of abatement is MC = 2.5Qa , where Qa is the aggregate amount of NOz in millions of tons abated by aviation companies.

(a) Without any government action to control emissions of NOz, how much abatement would you expect aviation companies and electricity companies to undertake?

(b) About 70 million tons of NOz are emitted annually by aviation companies and electric companies. Congress now passes legislation requiring that annual emissions of NOz from these companies to be reduced by a total of 30 million tons. If the goal is to minimize the cost of meeting this target, how much abatement should be undertaken by electric companies and how much by aviation companies? Explain the rule that generates this answer.

(d) Following lobbying by the aviation companies Congress instead decides only to regulate NOz from electric companies, and not from aviation companies. It requires electric companies to reduce their emissions NOz by 30 million tons annually. What is the total cost of emission abatement in this case? How does it differ from the total cost computed in (c), and why?

(e) Following a report by the President's Council of Economic Advisers, Congress is persuaded to introduce an emissions tax intended to reduce NOz from electric companies and aviation companies by a total of 30 million tons annually. What is the amount of the tax per ton of NOz emissions that it should set? How much abatement will occur at electric companies and how much will be undertaken by aviation companies? What is the total cost of emission abatement in this case?

Reference no: EM132207837

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