What will the price of NOx and SOx do in the long run?

The regulator does not interfere with the market; it is supply and demand that form the market price. In contrast to other markets, in the emission markets, environmental constrains drive the abatement costs and thus, demand for reduction credits.

The marginal abatement costs refer to the costs of reducing the last ton required to meet a constrain. The marginal abatement curve is a parabola, which means that the stricter the constrain, the higher the marginal abatement costs, with the increase of costs running at a faster rate. The marginal abatement curve plots the shadow prices ‘corresponding to constraints of increasing severity’ at time T against the quantity abated.

As environmental regulations tend to become stricter, marginal abatement costs plot raise and market prices of NOx and SOx tend upward. Opposing forces can be innovative solutions, such as technology or economic instruments, which smoothen up the costs of compliance. The SSA model consults MAC of the lower end as provided by ENTEC.