Market-mechanisms to reduce pollution

There are situations in which plants located in the same geographical area need to reduce air pollution by a given percentage for a short time period because of external factors. The default solution currently being implemented is simply the reduction of emission by each plant by the appropriate required percentage. However, the cost to the different plants for the reduction of a given pollutant may be different, and therefore there are allocations that are more profitable to all the plants than the default one. In such environments, each plant has incomplete information about the other plants' utility functions. We propose three market mechanisms to allocate the pollution permits. Simulation results show that one of the greedy market mechanisms that we propose leads to allocations that yield the plants an average utility that is very close to the optimal.