Corporate Strategy under an Emissions Cap

Effectiveness of the EU Emissions Trading Scheme

A major technological breakthrough significantly lowers the cost for many industrial firms covered by a cap-and-trade system for greenhouse gases to reduce their emissions. Assuming the total number of emission allowances (the cap) remains unchanged, what is the most likely immediate effect on the market for these allowances?

Under the European Union's Emissions Trading Scheme, the governing authority directly sets the price that firms must pay for each ton of greenhouse gas they emit.

Firm Decision-Making in an Emissions Market

Match each component of a market-based system for controlling industrial emissions with its primary economic function.

Policy Design for an Emissions Market

A policy is implemented to reduce industrial greenhouse gas emissions across a group of countries by creating a market for the right to pollute. Arrange the following key stages of this policy's operational cycle into the correct chronological order.

In a market-based system designed to reduce industrial pollution, a governing body sets a limit, or 'cap', on total emissions. Firms then receive or buy permits to pollute and can trade them. The price of these permits is determined by ______, creating a financial incentive for companies to invest in cleaner technologies.

Comparing Market-Based Environmental Policies