Suppose that a cap-and-trade program features "grandfathering" of pollution rights for an industry where the mix of firms is very heterogeneous (large and small, old and new, labor-intensive and capital-intensive, etc.). To protect the smaller firms, each of those firms receives enough allowances to cover 100% of their desired emissions, while bigger firms receive only enough permits to cover 75% of their desired emissions. In this situation, smaller firms can just ignore the cap-and-trade program and carry on as before, because they do not need to buy any permits. Big firms, however, will struggle to cut back their emissions or figure out a way to get more permits. True, False, Uncertain? Explain
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
