What are two ways to reduce pollution that require firms to pay to pollute

Question

Quizplus · Accepted Answer

Corrective taxes and pollution permits are two market-based mechanisms that require firms to pay to pollute. Corrective taxes impose a tax on each unit of pollution emitted, giving firms an incentive to reduce their pollution levels to avoid paying higher taxes. Pollution permits allocate a limited number of permits to firms, which can then trade them among themselves. Firms with high pollution levels must purchase additional permits, whereas firms with lower levels can sell their excess permits, creating an incentive for all firms to reduce their pollution levels efficiently. Both of these mechanisms promote pollution reduction while allowing firms the flexibility to choose their own methods for reducing pollution. In contrast, a command-and-control policy imposes specific regulations on firms without allowing them flexibility, making it less effective in controlling pollution.

What Are Two Ways to Reduce Pollution That Require Firms