Case 3: Limited Allowances Trading
Case 3: Limited Allowances Trading
- Avoids localized "hot-spots" near plants.
- Unconstrained trading of allowances may generate an asymmetry in the distribution of emissions that creates greater harms than if emissions reductions were more uniformly applied across the firms.
- Limited allowance trading balances the cost savings from allowances trading against the need for all sources to limit emissions.
- E.g., cap pollution trading to 10 tons / firm.