An emission tax scheme will always have a higher private compliance cost than a transferable emission permit scheme that achieves the same level of abatement.
If the permits are initially allocated by auction,the private compliance cost of the TEP scheme will be identical to the private compliance cost of the tax.

Question

Quizplus · Accepted Answer

The private compliance cost under a transferable emission permit (TEP) scheme can vary depending on how the permits are allocated and traded. If permits are initially allocated for free, firms may have lower compliance costs compared to an emission tax scheme. However, if permits are auctioned, the initial purchase cost for firms would be similar to the tax they would pay under an emission tax scheme, making the private compliance costs potentially similar at the outset. The difference in compliance costs over time would then depend on the market for permits and the flexibility it provides for firms to reduce emissions in a cost-effective manner.

An Emission Tax Scheme Will Always Have a Higher Private