Suppose that a natural gas power plant emits carbon emissions (E) as a byproduct of electricity generation. Marginal damages are given by 4E. The power plant's marginal abatement costs are given by 20 ā E. Furthermore, suppose that the regulator does not know the power plant's MAC, but estimates it to be 15 ā E. What level of emissions will the natural gas power plant emit in the absence of regulation? Illustrate the unregulated equilibrium on a graph.
