Question

Given the following information about the carbon dioxide emissions and marginal abatement costs for three regions, how much would each region abate under a carbon tax of $30/tonne?

E0 (Mt)
MAC ($/tonne)
Region 1
100
5A1
Region 2
200
10A2
Region 3
300
15A3
Total
600
n/a

Region 1 abates 50 Mt, Region 2 abates 100 Mt and Region 3 abates 150 Mt.

Incorrect Response
Region 1 abates 150 Mt, Region 2 abates 300 Mt and Region 3 abates 450 Mt.


Region 1 abates 94 Mt, Region 2 abates 197 Mt and Region 3 abates 298 Mt.

Correct Answer
Region 1 abates 6 Mt, Region 2 abates 3 Mt and Region 3 abates 2 Mt.
Region 1 abates 6 Mt, Region 2 abates 3 Mt and Region 3 abates 2 Mt.

Answer 1

To calculate the amount each region would abate under a carbon tax, we compare the marginal abatement costs (MAC) with the tax rate. Region 1 would abate 6 Mt, while Region 2 and Region 3 would not abate any emissions.

Step-by-step explanation:

The amount that each region would abate under a carbon tax of $30/tonne can be calculated by comparing the marginal abatement costs (MAC) with the carbon tax rate. In this case, Region 1 has a MAC of $5/tonne, Region 2 has a MAC of $10/tonne, and Region 3 has a MAC of $15/tonne. Since the carbon tax rate is $30/tonne, only Region 1 has a MAC that is lower than the tax rate.

To determine how much Region 1 would abate, we need to find the quantity at which the MAC is equal to the tax rate. So, we divide the tax rate by the MAC: $30/tonne ÷ $5/tonne = 6 tonnes. Therefore, Region 1 would abate 6 Mt (million tonnes) under the carbon tax.

Regions 2 and 3 have MAC higher than the tax rate, so they would not choose to abate any emissions under the carbon tax. Therefore, Region 2 and Region 3 would not abate any emissions under the $30/tonne carbon tax.