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The trading office buys an allowance @ $35

The market opens. The power business has emissions of 10 MTCO2/yr and the trading office has allowances for 9 MTCO2/yr. The trading office buys an allowance @ $35. The trading office sells an allowance @ $36 and is proud to report a profit of $1 on trades so far.

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The trading office buys an allowance @ $35

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  1. The marketopens. The power business hasemissionsof 10MTCO2/yrand the trading office has allowances for 9 MTCO2/yr

  2. The trading officebuys anallowance @ $35

  3. The trading officesells anallowance @ $36and is proudto reporta profitof $1 ontrades so far

  4. The trading officesells anotherallowance @ $38.Thiscauses some concernon thepowerside of the company

  5. The power businessadoptsthe 1stmeasure@ $30.But it isstillconcernedthatemissionsexceed theallowances

  6. The trading office buys an allowance @ $25.Thiscauses the powerfolks to wonder ifthey werewise to adopt the 1st measure.

  7. The trading officesells anallowance@ $26and is happy that the $26 sale price exceeds the$25 purchase price

  8. The power businessadoptsthe 2ndmeasure@ $32.There are now sufficient allowancesto cover the emissions.

  9. The trading office sells an allowance@ $25as the year comes to a close

  10. PenaltyCosts

  11. Adding up the costs Is $37 a good result?Could you have done better?

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