Question

Under emissions trading schemes, companies are allocated a fixed number of emissions permits but are allowed to buy and sell permits.
Which of the following statements correctly describes the effects of this type of pollution abatement program?

A) Under emissions trading programs, pollution levels will not fall sufficiently for optimal abatement.
B) Emissions trading programs will significantly increase costs for some firms, and thus they will exit the industry.
C) Emissions trading schemes are less efficient than requiring every firm to reduce emissions by a specific amount.
D) By allowing high-cost firms to buy permits from low-cost firms, the net cost of pollution abatement falls.

Answer 1

Answer: A) Under emissions trading programs, pollution levels will not fall sufficiently for optimal abatement.

Explanation:

First conceived in the seventies to fight acid rain and now useful in the battle against climate change, emissions trading is a program targeted at reducing emission by companies.

Under this scheme, every company that produces emissions will need to hold a permit for a limited amount. If they produce more than their stated limit, they would need to buy from other permit holders who produce lower emissions.  

While this program can set a limit of total emissions, it will not succeed in reducing pollution levels below this limit.