Tradeable permits
Definition. Tradeable permits are a market based instrument for controlling pollution in which the government issues a limited number of licences, each allowing the holder to emit a set quantity of a pollutant, and allows firms to buy and sell them. The total number of permits caps overall emissions.
Firms that can cut pollution cheaply do so and sell their spare permits, while those facing high abatement costs buy permits. This achieves a given reduction in emissions at the lowest total cost to society.
This term belongs to Government Intervention in Markets in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use tradeable permits for marks in the exam? Learn it in class or message the team.