RES-ECON 162 Lecture Notes - Lecture 16: Sulfur Dioxide, Decision Rule
3 May 2017
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Document Summary
Lower than expected permit prices imply low incentives to reduce emissions. It makes it easier for firms to just buy more permits if they are cheap and they end up decreasing abatement. Sulfur dioxide trading market- there might have been too many permits with demand low and prices low. The key to a tdp policy is that sources of emissions are able to trade permits (i. e. , the rights to release pollution). Under reasonable conditions trade among the sources will establish a competitive permit price. Each source treats the going permit price as constant when it makes its choice of how much to emit and how many permits to hold. The decision rule for the firm is to choose permits and emissions so that the going permit price is equal to its marginal abatement costs. It is important to realize that the firm"s additional emissions e*- e purchases permits from.
