permit to pollute

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A permit allowing the emission of a given quantity of pollution to the atmosphere, rivers, or the sea. One possible method of restricting pollution is to issue a limited quantity of permits to pollute, and forbid pollution without a permit. If the permits are tradable this means that the limited amount of pollution allowed will be allocated to those firms for which the costs of avoiding it are greatest. If permits are not tradable, the limited amount of pollution will be less efficiently allocated, and the permits will act as restrictions on entry to the industries concerned. Permits to pollute are an alternative to a tax per unit of pollution. If pollution standards are tightened, allocating tradable permits to pollute to firms in proportion to their past emissions gives them some compensation for the tightened standards. See also Coase theorem; pollution control.

Subjects: Economics.

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