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Econ 2216 (2021): The Economics of Global Warming Cap and Trade and Country Quesion Due: Tues April 6th accept late assignments with no penalty but cannot accept late assignments after the answers are posted). Its recommended you submit prior to the due date to avoid work bunching. Please submit each question as a separate PDF to the Assessments>>>Assignment drop box. Please answer the following TWO questions. There is no Brightspace Quiz component for this assignment. Broad instructions are similar to for the other assignments such as ordering the answers to help Kuda and Nyasha grade. Make sure that your pages are correctly aligned to read off the computer screen so the TAs don't have to turn the assignments. Thanks! Participation Component: You may post your finished poster in Part II under discussions to help other UNFCCC COP26 delegates (i.e. students) learn about your country. Even if you chose not to do the Assn 4 poster, you may participate in the poster session by visiting and asking questions and commenting on the posters. Also, feel free to visit us in office hours to show us your poster and explain it to us. These activities can be counted towards the optional participation grade. Best, Ruth, Kuda and Nyasha. 1. [50%]This is an old final exam question with a bit more added. Assume two GHG emitters in the world with the following MACs. ONE is a coal-fired electricity plant in Canada and TWO is a farm on rainforest land in the Democratic Republic of Congo. MAC (E.) = 20 - EL- MAC (E2) = 8 - E2 Price units are $/tonne CO2e and quantity units are megatonnes CO2e/year. * mega = million a) Redraw the graph below using graph paper or regular paper but draw to scale using a ruler. On the graphs, label: 1) MAC, & MAC, and ii) Business as usual (BAU) emissions for each emitter. $/t COze 20 I J B $/t CO2e 10 U H K 8 O R S 4 TI P Q .. 20 4 D F M E2 IO GHG emissions Coze (Megatonnes/ year) b)Assume a cap and trade policy and suppose that initially each emitter is given permits requiring them to abate 50% of their BAU emissions (i.e. half as much as they would like to emit). Assume 1 permit allows 1 tonne CO2e emissions. Label the initial permit allocation on your graph. e) Assuming competitive permit markets, use algebra OR the ruler method to calculate the equilibrium final allocation of permits. If you use algebra, for full marks, show your work including short sentences to guide reader through your logic. If you use the ruler method, explain your logic carefully. Be sure to discuss the equimarginal condition. 1 Ruler method: Move a ruler parallel to the x axis on both graphs such that the equimarginal condition holds. Position the ruler such that emissions from each country sum to the aggregate cap. d) Which firm buys and which firm sells permits and how many? On the graph, label final permit allocation, final emissions, and permits exchanged. e) Calculate the equilibrium permit price (Pe) and label on the graph. Please show work. f) Calculate the following and label on graph. i) total revenue due to permit sales ii) total expenditure on permits iii) total profits (surplus) for each emitter due to buying or selling permits (show work). g) Find the aggregate total abatement costs across both emitters) both at the initial allocation and final allocation. Which of the two allocations is cost effective? h) Give one hypothetical example of how carbon leakage might occur in the above scenario. This would occur if the GHG emissions that Canada purchases permits to gain emissions rights are not actually offset in the DRC by rainforest conservation and preservation relative to the BAU level. Econ 2216 (2021): The Economics of Global Warming Cap and Trade and Country Quesion Due: Tues April 6th accept late assignments with no penalty but cannot accept late assignments after the answers are posted). Its recommended you submit prior to the due date to avoid work bunching. Please submit each question as a separate PDF to the Assessments>>>Assignment drop box. Please answer the following TWO questions. There is no Brightspace Quiz component for this assignment. Broad instructions are similar to for the other assignments such as ordering the answers to help Kuda and Nyasha grade. Make sure that your pages are correctly aligned to read off the computer screen so the TAs don't have to turn the assignments. Thanks! Participation Component: You may post your finished poster in Part II under discussions to help other UNFCCC COP26 delegates (i.e. students) learn about your country. Even if you chose not to do the Assn 4 poster, you may participate in the poster session by visiting and asking questions and commenting on the posters. Also, feel free to visit us in office hours to show us your poster and explain it to us. These activities can be counted towards the optional participation grade. Best, Ruth, Kuda and Nyasha. 1. [50%]This is an old final exam question with a bit more added. Assume two GHG emitters in the world with the following MACs. ONE is a coal-fired electricity plant in Canada and TWO is a farm on rainforest land in the Democratic Republic of Congo. MAC (E.) = 20 - EL- MAC (E2) = 8 - E2 Price units are $/tonne CO2e and quantity units are megatonnes CO2e/year. * mega = million a) Redraw the graph below using graph paper or regular paper but draw to scale using a ruler. On the graphs, label: 1) MAC, & MAC, and ii) Business as usual (BAU) emissions for each emitter. $/t COze 20 I J B $/t CO2e 10 U H K 8 O R S 4 TI P Q .. 20 4 D F M E2 IO GHG emissions Coze (Megatonnes/ year) b)Assume a cap and trade policy and suppose that initially each emitter is given permits requiring them to abate 50% of their BAU emissions (i.e. half as much as they would like to emit). Assume 1 permit allows 1 tonne CO2e emissions. Label the initial permit allocation on your graph. e) Assuming competitive permit markets, use algebra OR the ruler method to calculate the equilibrium final allocation of permits. If you use algebra, for full marks, show your work including short sentences to guide reader through your logic. If you use the ruler method, explain your logic carefully. Be sure to discuss the equimarginal condition. 1 Ruler method: Move a ruler parallel to the x axis on both graphs such that the equimarginal condition holds. Position the ruler such that emissions from each country sum to the aggregate cap. d) Which firm buys and which firm sells permits and how many? On the graph, label final permit allocation, final emissions, and permits exchanged. e) Calculate the equilibrium permit price (Pe) and label on the graph. Please show work. f) Calculate the following and label on graph. i) total revenue due to permit sales ii) total expenditure on permits iii) total profits (surplus) for each emitter due to buying or selling permits (show work). g) Find the aggregate total abatement costs across both emitters) both at the initial allocation and final allocation. Which of the two allocations is cost effective? h) Give one hypothetical example of how carbon leakage might occur in the above scenario. This would occur if the GHG emissions that Canada purchases permits to gain emissions rights are not actually offset in the DRC by rainforest conservation and preservation relative to the BAU level

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