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MENTAL MODEL · M3286

Emissions Trading

Emissions Trading
BusinessHigh supportEconomics
Included
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

An environmental policy instrument based on the Coase theorem, which establishes property rights for pollutant emissions and allows trading to minimize the cost of pollution control. The government sets a total emission cap, and enterprises can buy and sell emission allowances based on their own abatement costs.

SCAFFOLDING EFFECT

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Cost-effective emission reduction. It provides a market-based policy tool to achieve environmental goals. In corporate environmental management, it helps assess the economic viability of emission reduction investments and find the lowest-cost abatement options through market mechanisms.

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Based on the Coase theorem: when property rights are clear and transaction costs are sufficiently low, parties can negotiate to achieve efficient allocation. Emissions trading turns pollution rights into tradable property rights. The government sets a total cap, and enterprises buy and sell allowances according to their marginal abatement costs, enabling society to achieve emission reductions at the lowest overall cost.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Carbon_emission_tradingZH · Explicit
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