Tradable Permits

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    Tradable Permits

    • Tradable permits are a market-based means of correcting market failure
    • The total number of permits is strictly controlled as a means of limiting the overall level of pollution
    • The permits can be bought and sold at an agreed price between the owner and purchaser
    • The incentive is for permit holders to achieve a lower level of pollution, so they can sell the permit on.
    • Tradable permits therefore combine the benefits of a market solution with those of regulation
    • If firms don’t have sufficient permits to cover their pollution, they will be prosecuted.

    • There are some problems to permits
      • There’s a problem calculating and distributing the permits to consumers
      • It’s hard to calculate the market price for traded permits
      • Enforcing and policing the system is difficult and costly

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