In an unregulated market, the power industry overproduces quantity Q_MKT at price P_MKT (point B). A Pigouvian tax (T) equal to the external marginal cost EMC shifts the supply curve (S) up from marginal cost S = MC_I to the social marginal cost curve (SMC). Now, the industry produces at point A, where SMC intersects demand (D), and supplies the socially efficient quantity Q* MWh at price P*.