The social marginal cost of electricity (SMC) equals the industry’s private marginal cost (MC_I) plus the external marginal cost (EMC). The socially optimal quantity of electricity, Q*, is found at point A, the intersection of the social marginal cost curve SMC and D. In a competitive market, however, production occurs at point B (Q_MKT, P_MKT), where MC_I = S = D. Because the industry does not take into account the external marginal cost (EMC), it produces a quantity of electricity Q_MKT that is higher than the socially optimal quantity (Q*). This results in a deadweight loss equal to the shaded triangle.