Suppose in an emissions trading system the permits are allocated free of charge to emitters on the basis of how much they have historically emitted. Can that allocation be consistent with cost-effectiveness? Does your answer depend at all on whether this allocation scheme was announced well in advance of its implementation?
Added by Lisa S.
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This is because emitters who have historically emitted more will receive more permits, potentially allowing them to continue emitting at high levels without facing the true cost of their emissions. Show more…
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