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Essay What Could Explain This Change In The Price Of Pollution Permits

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Student ID: 159017596 Group: BSc E Friday December 4, 2015 at 2 pm Under the European Union Emissions Trading System all European factories, power stations, and other installations with a net heat in excess of 20 Mega Watt must hold special permits in order to emit CO2. These permits were originally granted to the firms for free. However, permits can be traded. In April 2005, the price of a one tonne CO2 permit was close to 30 Euro. In September 2007, it was zero. What could explain this change in the price of pollution permits? Pollution permits are licenses that firms must obtain before polluting. They are enforced with the aim of reducing CO2 emissions in an entire economy. Explain the price of pollution permits increased ~ pros of pollution permits …show more content…

Such negative externalities incur costs for the government e.g. breathing problems would result in an increase in health costs such as more purchasing more asthma pumps and breathing masks. Therefore an increase in the price of pollution permits would make it costly to pollute which should discourage polluting firms from polluting huge amounts. Therefore negative externalities such as breathing problems are internalised and governments’ expenditure on the health sector is reduced. Since the pollution permits create a market for buying and selling carbon permits, the government can raise funds by selling pollution permits to the industry. The revenue made could then be used to clean up the environment or compensate

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