🏭 Uniform vs. Firm-Specific Emissions Targets

See why cost-effective pollution control requires equating marginal abatement costs across firms, not uniform reductions

1
Set Firm MAC Curves
2
Choose Total Abatement Target
3
Compare Uniform vs. Optimal
🎯 Policy Target
Total Abatement Required 60 units

Combined baseline emissions: 100 units
Target: reduce by 60%

🏭 Firm 1 (Low-Cost Abater)
MAC Slope (c₁) 0.5
MAC₁(A₁) = c₁ × A₁ = 0.5 × A₁

Baseline emissions: 50 units

🏭 Firm 2 (High-Cost Abater)
MAC Slope (c₂) 2.0
MAC₂(A₂) = c₂ × A₂ = 2.0 × A₂

Baseline emissions: 50 units

💰 Cost Savings
Uniform Standard Cost $1,125
Optimal Allocation Cost $900
💵 Savings from Trading $225 (20%)
💡 Key Insight

Cost-effectiveness requires MAC₁ = MAC₂. With a uniform standard, the low-cost firm abates too little and the high-cost firm abates too much.

Tradeable permits (or firm-specific targets) achieve the same total reduction at lower cost by shifting abatement to the low-cost firm.

Firm 1: Low-Cost Abater
Baseline emissions: 50 units
Uniform A₁: 30
Optimal A₁: 48
Firm 2: High-Cost Abater
Baseline emissions: 50 units
Uniform A₂: 30
Optimal A₂: 12
Combined: Aggregate MAC and Cost Comparison
Horizontal sum of firm MACs shows industry-wide abatement supply
MAC₁ (Firm 1)
MAC₂ (Firm 2)
Aggregate MAC
Deadweight Loss (Uniform)
Uniform Standard
$1,125
Cost-Effective Allocation
$900