Suppose a factory emits greenhouse gases from its chimney. Currently, the factory does not abate emissions at all. If it were to abate, its marginal abatement cost curve is MAC = 225 - 5E. The residents of a nearby town are impacted by the pollution and face marginal damages of $4 per unit of emissions MD = 4E. 1. What is the unabated level of emissions? 2. What is the socially optimal level of pollution? 3. Compute the total damages at the socially optimal level. 4. Compute the total abatement cost at the socially optimal level.

1. What is the unabated level of emissions? 2. What is the socially optimal level of pollution? 3. Compute the total damages at the socially optimal level. $ 4. Compute the total abatement cost at the socially optimal level. $

If the allowances can be traded and the market price of allowances is $50 per ton, whichpolluter will buy allowances, and which one will reduce emissions and sell allowances tothe other? How much will be the total abatement cost?

QUESTION 5A factory has the right to pollute and so releases sulphur dioxide from its smokestack. It currently does not abate its emissions at all because it would cost $3250 to reduce emissions to the socially optimal level. The many residents in the nearby town suffer total damages of $3500 and so enter legal negotiations with the factory to reduce emissions. The cost of the negotiations (in legal fees) to the residents is $1000. Assume the factory and all residents in the town have full information. Does the Coase Theorem suggest that emissions will be reduced to the optimal level in this case? What is the gain or loss to the residents that would result from bargaining?No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The loss to residents would be $750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because property rights are not clear and enforceable. The loss to residents would be $750. No, Coase Theorem would not suggest that emissions will be reduced to the optimal level in this case because transaction costs are high. The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because all assumptions are satisfied. The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because transaction costs are low.The gain to residents would be $250. Yes, Coase Theorem would suggest that emissions will be reduced to the optimal level in this case because the factory is naturally incentivised to reduce emissions given the threat of legal proceedings.There is no gain or loss to the residents.

When there is uncertainty over the marginal cost of pollution abatement, explain when a tax on pollution is preferable to quantity regulation

Assume an economy has only two polluters, one airline and one power plant. Last year, theairline emitted 4000 tons of CO2 and the power plant emitted 6000 tons of CO2. It is predictedthat the airline and the power plant’s CO2 emissions will not change next year if no emissionmitigation policy is implemented. The regulator will implement ETS next year. The schemewill take the last year as the baseline year and will grandfather all the allowances according tothe baseline emissions. The policy target is to cut 10% of CO2 emission. The marginalabatement cost (MAC) of the airline is $60 per ton of CO2 and the MAC of the power plant is$40 per ton.(a) How many allowances will be allocated to the airline and the power plant respectively