Question

Cap-and-trade policy in effect makes the right to pollute a tradable good.

True or False

Answer 1

The answer is True

The cap on greenhouse gas emissions that drive global warming is a firm limit on pollution. The cap gets stricter over time.

The trade part is a market for companies to buy and sell allowances that let them emit only a certain amount, as supply and demand set the price. Trading gives companies a strong incentive to save money by cutting emissions in the most cost-effective ways.

Companies that cut their pollution faster can sell allowances to companies that pollute more, or "bank" them for future use.

This market – the "trade" part of cap and trade – gives companies flexibility. It increases the pool of available capital to make reductions, encourages companies to cut pollution faster and rewards innovation

Because there are only so many allowances available, total pollution drops as the cap falls.

As companies use established techniques to lower emissions, such as adopting energy-efficient technology, entrepreneurs see opportunity