A system of transferable pollution rights:
A)increases the quantity of pollution generated.
B)provides firms with an incentive to develop new pollution-abatement technologies.
C)is not as cost-effective in reducing pollution as a system based on compliance standards.
D)is characterized by none of the above.

Question

A system of transferable pollution rights:
A)​increases the quantity of pollution generated.
B)​provides firms with an incentive to develop new pollution-abatement technologies.
C)​is not as cost-effective in reducing pollution as a system based on compliance standards.
D)​is characterized by none of the above.

Quizplus · Accepted Answer

A system of transferable pollution rights provides firms with a financial incentive to develop new pollution-abatement technologies as they are able to sell their unused allowances in the market. This promotes innovation and encourages firms to find more efficient ways of reducing pollution. This system has been shown to be cost-effective in reducing pollution compared to a compliance-based system. It does not necessarily increase the quantity of pollution generated as the overall level of pollution is capped and the trade of pollution rights simply redistributes the pollution among firms.

A System of Transferable Pollution Rights