Economics Environmental Externalities Questions
The purpose of a cap-and-trade system is to regulate and reduce the emissions of pollutants or greenhouse gases by setting a limit (cap) on the total amount of emissions allowed. This system allows companies or entities to trade (buy or sell) permits or allowances that represent the right to emit a certain amount of pollutants. It aims to create economic incentives for companies to reduce their emissions by rewarding those who emit less and penalizing those who exceed their allocated limits. The overall goal is to achieve environmental goals efficiently by encouraging emission reductions at the lowest cost to society.