Question

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:

A) Directly controls and regulates each firm's emissions
B) Encourages firms to reduce emissions through subsidies
C) Allows firms to trade emissions permits in the market
D) Exempts firms from any emission reduction requirements

Answer 1

The government allows firms to trade emissions permits in the market under a cap-and-trade emissions policy.

Step-by-step explanation:

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government allows firms to trade emissions permits in the market. This system, known as cap-and-trade, is designed to limit the total level of emissions by issuing a finite number of permits, which can be bought and sold by companies in need of higher or lower emissions capabilities, therefore, creating a market for emissions. Firms with surplus permits due to lower emissions can sell their excess capacity to firms that exceed their emissions limit, creating financial incentives for companies to reduce their pollution.