EFFICIENCY LOSS AND TRADABLE PERMITS



Table 2: Results of the Social Planner’s Model (10% reduction)

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Estimated Emission Level (ton)

97,531.8

84,505.2

82,091.8

82,338.6

96,995.1

443,462.5

Required NOx reduction (ton)

31,958.4

18,931.7

16,518.4

16,765.2

31,421.7

115,595.4

Total ERCs issued (ton)

65,573.4

65,573.4

65,573.4

65,573.4

65,573.4

327,867.0

No. of ERCs traded (ton)

17,458

9,752.2

15,280.7

16,763.2

13,945.8

73,199.9

No. of unused ERCs (ton)

0

13,652

10,924.6

3,641.1

2,170.7

30,388.4

No. of buyers in the market

24

22

27

28

24

-

No. of sellers in the market

20

22

17

16

20

-

No. of firms with technology adoption

4

4

4

4

4

4

Annual abatement cost (in million)

3.31

3.08

2.91

2.75

2.59

14.64

investing in technology adoption in scenario-1 would again invest in control
equipment in this scenario. The other two firms with new technology adoption were
also from petroleum refinery and electric generating industries. Since the market is
cleared in the first trading season, no firm with technology adoption would face an
efficiency loss.

Starting with year-2, some firms would not be able to sell their unused ERCs
and the market was not cleared. Since the firms’ actual emission levels were
determined differently, the unused ERCs were either from firms that adopted new
equipment or from firms whose emission levels were lower than their initial ERC
allocation levels. The amount of unused ERCs in year-2 was 13,652 tons, which is
roughly 21% of the total issued ERCs. The substantial excess supply situation
continued in year-3, although not being as severe (10,924 tons) due to the low actual

10



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