When comparing a system of emission taxes to a system of tradable pollution permits,the same amount of pollution could be abated in each as long as

Question

Quizplus · Accepted Answer

If the cap on emissions is chosen such that the equilibrium price of the permits is equal to the emissions tax rate (option E), then both systems will achieve the same amount of pollution abatement. This is because the equilibrium price of the permits will reflect the marginal cost of abatement, and the emission tax rate will also reflect the cost of abatement. Therefore, both systems will provide the necessary incentive for firms to reduce emissions to the same level. The other options are not sufficient to ensure the same level of pollution abatement in both systems.

When Comparing a System of Emission Taxes to a System