Shame on you! This appears to be a situation where the marginal abatement costs are not equalized:
While details of the E.P.A.’s proposal remain confidential, experts predict that it will include separate standards for carbon dioxide emissions from plants fired by natural gas and by coal. Plants using comparatively clean gas would be permitted to emit perhaps 1,000 pounds of carbon dioxide per megawatt-hour, a ceiling within easy reach using modern technologies.
Coal-fired plants, meanwhile, may be allowed to emit as many as 1,400 pounds per megawatt-hour. But coal is so heavily laden with carbon that meeting even that higher limit would require operators to scrub carbon dioxide from their emissions before they reach the smokestack, and then pump it into permanent storage underground.
via www.nytimes.com
One of the more useful things about the field environmental economics is that it can help reduce the costs of achieving any environmental quality target. When there are multiple sources of pollution, costs are minimized when the last unit of abatement costs the same for each source. In other words, when the marginal abatement costs are equalized total costs are minimized. To see this imagine if the last unit of abatement for a new coal plant is higher, say $80, than for a new natural gas plant, which is $50. Costs would be reduced by $30 if the natural gas plant was required to reduce one more unit and the coal plant reduced one less unit. Environmental quality does not suffer and money is saved.
The article goes on to say that 1400 pounds per megawatt hour might not be technically feasible. This suggests that the marginal abatement cost for natural gas is lower than the marginal abatement cost for coal at these standards. Therefore, costs of achieving the policy goal would be lowered if the standard for natural gas plants is tightened (i.e., fewer pounds of CO2 per megawatt hour) and the standard for coal is loosened. Regulating by prices (e.g., carbon tax) or quantities (e.g., cap-and-trade) are two ways to achieve equalized marginal abatement costs without knowing what the marginal abatement cost curves look like.
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