If a system of emission charges forces firms to internalize all external costs:

Question

Quizplus · Accepted Answer

When firms are forced to internalize all external costs through emission charges, the relative prices of polluting activities will rise. This means that firms will have to pay the full cost of their pollution, which will make it more expensive to engage in activities that generate a lot of pollution. This creates an incentive for firms to reduce their pollution as much as possible, or to find more efficient ways to produce the same amount of output while generating less pollution. This will lead to a reduction in pollution levels over time.

If a System of Emission Charges Forces Firms to Internalize