Abatement subsidies can increase total emissions when
A) the pollution control technology supported by the subsidy is outdated
B) the number of polluting firms entering the industry increases to gain the subsidies
C) marginal abatement costs decrease while marginal damages remain the same
D) marginal damages decrease while marginal abatement costs remain the same

Question

Quizplus · Accepted Answer

Abatement subsidies can lead to an increase in total emissions if the subsidy attracts new polluting firms to the industry, which can outweigh the emissions reduction achieved by existing firms receiving the subsidy. Therefore, choice B is the correct answer. A is incorrect because the subsidy may also support newer, more effective technologies. C and D describe scenarios where abatement subsidies would be effective in reducing emissions, so they are also incorrect in the context of the question.

Abatement Subsidies Can Increase Total Emissions When