Cap and Trade: Simple Example Current Total emissions = 100 tons Current Total emissions = 100 tons  Plant A emits 50 tons  Plant B emits 50 tons New limit: Total emissions cannot exceed 50 tons New limit: Total emissions cannot exceed 50 tons  Plant A limit = 25 tons  allocated 25 allowances  Plant B limit = 25 tons  allocated 25 allowances Plant A is able to reduce more cheaply ($10/ton) than Plant B ($30/ton) Plant A is able to reduce more cheaply ($10/ton) than Plant B ($30/ton) Plant A reduces to 5 tons & sells 20 tons of its extra reduction to Plant B Plant A reduces to 5 tons & sells 20 tons of its extra reduction to Plant B  Plant A sells 20 allowances to Plant B
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