Under a transferable emissions permit system,

Question

Quizplus · Accepted Answer

In a transferable emissions permit system, firms are given a fixed number of permits to emit a certain amount of pollutants. If a firm wants to emit more, it needs to buy permits from other firms. Therefore, firms with low marginal abatement cost curves will reduce their emissions more because it is cheaper for them to reduce emissions than to buy additional permits. On the other hand, firms with high marginal abatement cost curves will find it costlier to reduce their emissions, and thus will choose to buy permits instead. This will create a market where permits are traded, and the price of the permits will reflect the marginal social cost of emissions.

Under a Transferable Emissions Permit System