firms. However, unsold permits may create an excess supply in the market which is
captured by the variable SURPLUS FY . When SURPLUS FY equals zero, then the
trading market will be in equilibrium (or cleared). If SURPLUS FY f 0 this implies
that the environmental quality is over achieved. This is because firms may have
generated more ERCs than needed. Since firms cannot adjust their emission reduction
level once LNB is chosen, the model may not be solved without adding this variable.
For any firm, it includes the amount of ERCs sold and used by the firm to cover the
required emission reduction by the EPA.
Equation (3) implies that the total buy and sell of ERCs have to be balanced.
However, this equation is unlike the equilibrium constraint employed in the permit
trading studies presented in the literature. It can only be interpreted as an equilibrium
constraint if the variable SURPLUS FY in equation (2) is zero.
Equation (4) is a technical constraint which ensures that each technology can be
installed only once during the planning horizon. Once an equipment is adopted it can
be used for the remaining years.
Data:
The database required in the social planner’s model, including total emissions in the
year 2000 for the projected KPERMS participants, technical description of the
KPERMS sources and control efficiency of add-on control technologies available to
these sources, is provided by the EPA. The emissions data set covers 42 firms which
account for approximately 52% of the region’s NOx emissions from point sources.
Since the actual total emission level in the entire Kaoshiung-Pingtung county is about
two times higher than the value used in this study (due to the unavailable data for
excluded firms), the minimum total cost of the program will be extrapolated to
determine the total cost for the entire area.
Other cost and engineering data used in the simulation come from engineering
studies by the EPA. KPERMS is assumed to be a 5-year program, therefore using the
same baseline emission level to project future actual emissions may not be fully
representative. In the simulations we used the past emission records to estimate
potential emissions for the period 2007-2011. Since each firms’ past emission records
show no certain upward or downward trend, we assumed that the actual emission
levels in the planning horizon would follow a uniform distribution whose lower and
upper bounds are the extreme values observed during 1995-2000.
According to the EPA’s technical report (1998), LNB is considered as the best
available control technology for power generation, paper, petroleum refining and
chemical industries. SCR, on the other hand, is the most cost-effective equipment for
steel and some petroleum refining industries compared with other add-on control