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How Trading Permits Saves Money
Say it would cost one utility $10 to cut emissions by a ton and that it would cost another utility $50 to cut emissions by a ton. So the utility with the high cleanup cost buys a one-ton permit from the other utility for $30. This saves the buyer $20 because it doesn’t have to spend $50 to cut emissions. The seller makes $20-$30 on the permit it sells, less $10 to clean up an extra ton. So both companies come out ahead, and that’s why they do it.
But notice that cleaning up a ton for $10 instead of $50 has reduced total cleanup costs. Economists have done the math to show that if companies make every profitable trade, cleanup costs are minimized. That saves consumers as much as possible.
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http://zfacts.com/p/1025.html | 11/20/08 08:54 GMT
Modified: Wed, 25 Jun 2008 18:20:14 GMT
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