Question

Given the following information about the emissions and MAC of two regions considering participation in a cap-and-trade scheme for carbon dioxide emissions, if each region receives 1,000 transferrable emission credits, what is the final allocation of permits after trading takes place?

E0 (tonnes)
MAC ($/tonne)
Region 1
2,000
200A1
Region 2
1,000
600A2
Total
3,000
n/a

Region 1 has 750 permits and Region 2 has 250 permits.


Region 1 has 1,250 permits and Region 2 has 750 permits.


Region 1 has 250 permits and Region 2 has 750 permits.


Region 1 has 500 permits and Region 2 has 500 permits.

Answer 1

The final allocation of permits after trading takes place in a cap-and-trade scheme for carbon dioxide emissions is based on the emissions and allowances of each region. In this scenario, Region 1 has 750 permits, and Region 2 has 250 permits.

Step-by-step explanation:

In a cap-and-trade scheme for carbon dioxide emissions, the allocation of permits is determined based on the emissions and the emissions allowances of each region. After trading takes place, the final allocation of permits is based on the trading activity and the number of initial permits each region had.

In this case, Region 1 had 2,000 tonnes of emissions and a MAC (Marginal Abatement Cost) of $200 per tonne, while Region 2 had 1,000 tonnes of emissions and a MAC of $600 per tonne.

Each region receives 1,000 transferrable emission credits. Since these permits are marketable, firms can buy and sell them. Based on the given information, after trading takes place, Region 1 will have 750 permits, and Region 2 will have 250 permits.