11 07 17 2

Pagina 1

July 11, 2017 ENERGY ECONOMICS – FOLDER 2 M.Sc. in Energy Engineering Duration: 2 hours and 30 minutes During the test students are not allowed to use class notes or textbooks or to leave the classroom Mark the exam folder with your Name, Last Name and Politecnico di Milano Id. Number At the end of the test hand over only the exam folders Name Last Name Id. Number Instructions and grading system Read the questions carefully and provide answers to all the points raised in each question. It is important to use a correct and appropriate terminology for all economic and technical terms. Remember to define all variables and parameters used in your answers. A full score will be awarded only if the answer is correct and complete. A partial score will be awarded only if the partial response, albeit incomplete, does not contain any errors. 2 Question 9 (6 points) The economy is composed by two polluting firms, A and B, with the following total abatement cost (AC) functions, where Z is the level of abated emissions: ACA(ZA) = 100 + 2(ZA)2 ACB(ZB) = 70 + ½(ZB)2 The government wants to attain a level of overall emissions of M* = 30 by means of a pollution permit scheme. Total business as usual emissions (i.e., in absence of the policy) were MMax = MAMax+ MBMax = 80. Furthermore, we assume that: MAMax = 35; MBMax = 45 that also represent their emissions before the intervention of the government. (9a) Compute the optimal level of abatement (Z*) and the aggregate marginal abatement cost function (MACTOT) of the economy (hint: it is not simply the sum of MACs). Additionally, make a graphical representation of MACTOT, MACA and MACB. (9b) Suppose the government decides to allocate emission permits via grandfathering to the two firms. Each firm receives the same number of permits (i.e.,…