interactive exercise
DESCRIPTION
Interactive Exercise. Scenario. Engineer or mid-level manger in a firm Six firms: 1 ... 6 Know of an action that would reduce emissions Six possible actions per firm: A ... F Think of them as efficiency improvements The action could reduce up to 10 tons of emissions - PowerPoint PPT PresentationTRANSCRIPT
Interactive Exercise
1
Scenario
• Engineer or mid-level manger in a firm– Six firms: 1 ... 6
• Know of an action that would reduce emissions– Six possible actions per firm: A ... F– Think of them as efficiency improvements
• The action could reduce up to 10 tons of emissions
• The action has a specific cost per ton– Example: $8 per ton
2
Simulation
• Randomly distribute initial information– Slips will show: firm, action, cost per ton
• Form into teams for each firm– Assemble and digest information
• Determine how firm would react to policies– Command and control (2 cases)– Emissions fee or tax– Tradable emissions permits
3
Initial Emissions
Firm Emissions
1 160
2 60
3 110
4 80
5 90
6 100
Total 600
4
Policy 1: Equal Reductions
• Each firm must eliminate 30 tons of its emissions• Firms can choose the lowest cost method
• Questions:– Which actions should your firm take?– What is your firm’s total cost of abatement?
5
Policy 1 results
Firm Tons Cost
1 30 560
2 30 180
3 30 300
4 30 560
5 30 180
6 30 300
Total 180 2080
6
Policy 2: Proportional Reductions
• Each firm must eliminate 30% of its emissions• Firms can choose the lowest cost method
• Questions:– Which actions should your firm take?– What is the firm’s total cost of abatement?
7
Policy 2 results
Firm Tons Cost
1 48 2224
2 18 108
3 33 330
4 24 368
5 27 162
6 30 300
Total 180 3492
8
Policy 3: Emissions Fee
• Each firm must pay $17 on each ton emitted• Firms can clean up, pay the fee, or do some of both• Firm’s goal is to keep costs low
• Questions:– Which actions should your firm take?– How much does it reduce emissions?– What is the cost of reducing emissions?– How much does the firm pay in fees?– What is the total cost imposed by the policy?
9
Policy 3 results
Firm Tons Abatement cost Tax payments Total cost
1 20 240 2380 2620
2 30 180 510 690
3 40 400 1190 1590
4 20 240 1020 1260
5 30 180 1020 1200
6 40 400 1020 1420
Total 180 1640 7140 8780
10
Policy 4: Tradable Permits
• Each firm must own a permit for each ton emitted• Firms are granted permits for 30 tons less than original
emissions• The permits can be bought or sold
• Questions:– How many permits would your firm want to BUY at each of the
following prices:• $1, $3, $5, $7, $9, $11, $13, $15, $17,$19
– How many permits would your firm want to SELL at each of the prices above?
– Fill in the answers on the worksheet
11
Policy 4 permit market: demand
Price 1 2 3 4 5 6 Total
1 30 30 30 30 30 30 180
3 30 30 30 30 30 30 180
5 30 30 30 30 30 30 180
7 30 0 30 30 0 30 120
9 20 0 30 20 0 30 100
11 20 0 0 20 0 0 40
13 20 0 0 20 0 0 40
15 20 0 0 20 0 0 40
17 10 0 0 10 0 0 20
19 10 0 0 10 0 0 20
12
Policy 4 permit market: supply
Price 1 2 3 4 5 6 Total
1 0 0 0 0 0 0 0
3 0 0 0 0 0 0 0
5 0 0 0 0 0 0 0
7 0 0 0 0 0 0 0
9 0 0 0 0 0 0 0
11 0 0 10 0 0 10 20
13 0 0 10 0 0 10 20
15 0 0 10 0 0 10 20
17 0 0 10 0 0 10 20
19 0 0 10 0 0 10 20
13
Policy 4 permit market
Price Demand Supply D - S
1 180 0 180
3 180 0 180
5 180 0 180
7 120 0 120
9 100 0 100
11 40 20 20
13 40 20 20
15 40 20 20
17 20 20 0
19 20 20 0
14
Policy 4 trading and abatement
Firm Emit Initial Buy Sell Final Abate
1 160 130 10 140 20
2 60 30 30 30
3 110 80 10 70 40
4 80 50 10 60 20
5 90 60 60 30
6 100 70 10 60 40
Total 600 420 20 20 420 180
15
Policy 4 costs
Firm Buy SellPermit
$Abate
Abate$
Total
1 10 170 20 240 410
2 30 180 180
3 10 -170 40 400 230
4 10 170 20 240 410
5 30 180 180
6 10 -170 40 400 230
Total 20 20 180 1640 1640
16
Summary
AbatementAbatement
CostNet Fees
Total toFirms
Cut 30 tons 180 2080 0 2080
Cut 30% 180 3492 0 3492
Emissions Fee 180 1640 7140 8780
TradablePermits
180 1640 0 1640
17
Why the differences across firms?
• Initial emissions differ– Especially important for proportional reduction or taxes
• Abatement options differ– Abatement costs differ as a result
• Here, the six firms fell into three categories– Firms 2 & 5: lowest cost at first but then rising– Firms 3 & 6: higher initial cost but rises more slowly– Firms 1 & 4: high and rapidly rising costs
18
Abatement Cost Curves
0
20
40
60
80
100
120
140
0 10 20 30 40 50
Tons
Co
st
pe
r T
on
Firms 1 & 4Firms 2 & 5Firms 3 & 6
19