Explain how the tradeable permit plan works


Under the tradeable permit plan, the EPA auctions a set number of sulfur dioxide emission allowances annually, with each allowance permitting one ton of emissions. Companies can then use up their allowances for that year, save them for future use, or sell their allowances to other companies. In this way pollution reduction can occur in the most efficient way possible, because firms for whom emission reduction is cheapest have the incentive to do more than meet the minimum standards, whereas those for whom it is too expensive to improve pollution controls will purchase more permits. Thus, overall emissions levels are held constant.

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