A power generation company spews 100 million tons of flue gases (mostly CO2 and SO2) into the environment each year. The company has committed to spending $1.5 billion in capital over the next five years to reduce its emissions by 5%.
More will be spent after five years to reduce emissions further. (3.3)
a. What is the implicit cost of a ton of flue gas?
b. If India produces 4 billion tons of flue gases per year, how much capital must be spent to reduce the total emissions of power plants by 4% over the next five years based on your answer in Part (a)?