One of the ways that initial pollution rights can be allocated in a cap-and-trade program is by equal distribution among all existing sources of a particular effluent. Which of the following is a reason that equal distribution of initial pollution rights among polluters is flawed?
A) Existing firms within an industry vary in size.
B) Firms in different industries may vary in value of output.
C) This method does not reward those who have invested in emissions reductions already.
D) All of the above.

Question

Quizplus · Accepted Answer

A) Existing firms within an industry vary in size, which means that equal distribution of initial pollution rights may not align with the actual amount of emissions each firm produces.
B) Firms in different industries may vary in value of output. Equal distribution of initial pollution rights doesn't take into account factors that affect each industry or firm's capacity to reduce emissions, such as the size, economic value, and technological advantages.
C) This method does not reward those who have invested in emissions reductions already. Firms that have already invested in emissions reductions, may be penalized because they are allocated the same amount of initial pollution rights as a firm that may have done nothing to reduce emissions.

One of the Ways That Initial Pollution Rights Can Be