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Marketable Emission Credits and Economic Efficiency

Explain why economists believe that marketable emission credits add to overall economic efficiency. Other groups in our society prefer across-the-board limitations on maximum discharges of air pollutants by firms. What are the different goals of these two groups? How are voters to decide which path to follow?

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Why Economists believe that marketable emission credits add to overall value:

The marketable emission credit is a license to pollute. The polluters receive tradable emission credits for any reductions in their emissions below an admissible standard whereby the level of the emissions is set by sources trade and a regulator among themselves. These credits were designed to offset emissions by reducing emissions from existing sources by a greater amount and to ensure that new sources of air pollution installed technology that had the lowest achievable emission rate in areas with less than acceptable air quality. These credits are market-based rights that involve regulation of a variety of environmental problems by using tradable quantity instruments (Grafton, 2004).

Economists believe that emissions should not be so stringent that they end up costing the society more than the value of the benefits they produce. This type of mechanism will make appropriate adjustments based on the new realities of the climate. ...

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The following posting answers questions about economic efficiency and marketable emission credits.