Question

"The government of Country X follows a​ cap-and-trade system of tradable emission allowances. Each steel manufacturing firm in this country is permitted to release a maximum of 30 million pounds of pollutants​ annually, but the firms can freely trade their emission allowances with each other. Clemington​ Inc., an iron and steel manufacturer in this​ country, releases 1.2 million pounds of airborne pollutants into the atmosphere every year and has been asked by the pollution control department to reduce pollution. Stella​ Morris, a director at Clemington​ Inc., strongly recommends that the board buy the allowances from other steel plants instead of curbing production.

Which of the​ following, if​ true, would strengthen​ Stella's view?
A.The cost of installing air scrubbers that would limit the release of pollutants is higher than the market price of the emission allowance.
B.A shortage of pollution allowances has induced the government to impose restrictions on their trade. There is an excess demand for emission allowance in this industry due to which the government has imposed a restriction on their trade.
C.Competitors of Clemington Inc. have earned higher profits after installing air scrubbers.
D.The research team at Clemington Inc. discovers a new​ chemical, which, when mixed with iron​ ore, can reduce the pollution levels within permissible limits.
E.The government has also imposed significant restrictions on the mining of coal.

Answer 1

Option A strengthens Stella's view by outlining that it's cheaper for Clemington Inc. to buy emission allowances than to install costly air scrubbers, aligning with the economical efficiency pursued in cap-and-trade systems.

Step-by-step explanation:

To strengthen Stella Morris's view that Clemington Inc. should buy allowances from other steel plants instead of curbing production, one must consider the context of a cap-and-trade system. In such a system, firms that can reduce pollution at lower costs do so and sell their excess permits, whereas firms for which reductions are more expensive can buy permits. Option A would strengthen Stella's argument the most, as it directly compares the cost of installing pollution-control equipment (air scrubbers) with the market price of emission allowances, validating the financial benefit of purchasing allowances over making technological or process changes.

Under this system, the total quantity of pollution will decline, as overall limits on emissions are still enforced, and the market will ensure that reductions occur in the most economical way. Confirming that air scrubbers are more expensive than buying allowances supports the argument for purchasing permissions as the most economical choice for Clemington Inc.