What is the rationale behind a marketable emission allowance scheme? to raise re

Question

What is the rationale behind a marketable emission allowance scheme? to raise revenue for the government through the sale of emission permits and at the same time set an emissions target to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

Explanation / Answer

Answer is D

EXPLINATION FOR UNDERSTANDING:

Emissions trading or cap and trade is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that may be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or allowances or carbon credits) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their volume of emissions must buy permits from those who require fewer permits.

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