Explain How Tradeable Permits Could Be Used to Reduce Carbon

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The Answer is The appropriate government department uses available scientific evidence to determine an acceptable level of carbon emissions for the nation as a whole, both in the present, and in terms of reductions over time. Individual carbon emitting entities are then allocated an allowed emission level for the present, which is normally reduced over time. Divisible permits are then allocated on the basis of the allowed emissions. If firms are able to reduce their emissions below the allocated level, they are able to sell their unused permits in tradeable permit markets. The permit prices should be determined by the interaction of demand and supply in the market for tradeable permits. Firms which can reduce emissions relatively cost effectively have an incentive to do so in order to profit from the sale of their permits. Those firms in industries where costs of emission reduction are higher may emit beyond their allocations by buying additional permits. This results in efficiency in emission reduction.

Explain How Tradeable Permits Could Be Used to Reduce Carbon

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