Once tradeable pollution permits have been allocated to firms:
A)the government controls the price of permits
B)firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits
C)the value of pollution saving technology is always lower than the market value of a pollution permit
D)the total amount of pollution governed by the permit will always decrease

Question

Quizplus · Accepted Answer

If firms can reduce pollution only at high cost, they will be willing to pay more for pollution permits. This is because buying permits will be cheaper than the cost of reducing pollution. This can lead to a market for pollution permits where the firms that can reduce pollution more easily or at a lower cost will sell their permits to the firms that need them more. This can create an incentive for firms to innovate pollution-saving technology to reduce their costs and make them more competitive in the market. The government may set a cap on the amount of pollution allowed, but the market will determine the price of the permits. The total amount of pollution governed by the permit may not necessarily decrease, as long as the cap remains the same.

Once Tradeable Pollution Permits Have Been Allocated to Firms