Cisco CCSP Certification Exam 642-553

In this example Sweden would abate emissions until its MACS intersects with P (at R*), but this would only reduce a fraction of Sweden’s total required abatement. After that it could buy emissions credits from Germany 640-822 for the price 'P' (per unit). The internal cost of Sweden’s own abatement, combined with the credits it buys in the market from Germany, adds up to the total required reductions (RReq) for Sweden. Thus Sweden can also profit from buying credits in the market (Δ d-e-f).642-426 This represents the ‘Gains from Trade’, the amount of additional expense that Sweden would otherwise have to spend if it abated all of its required emissions by itself without trading.

Germany made a profit by abating more emissions than required: it met the regulations by abating all of the emissions that was required of it (RReq). Additionally, Germany sold its surplus to Sweden as credits, 642-523 and was paid 'P' for every unit it abated, while spending less than 'P'. Its total revenue is the area of the graph (RReq 1 2 R*), its total abatement cost is area (RReq 3 2 R*), and so its net benefit from selling emission credits is the area (Δ 1-2-3) i.e. Gains from Trade.