pollution permits

Permits issued by a government that allow the owner to pollute the environment legally. These permits may be bought and sold; firms that improve their environmental efficiency would reduce their need for permits and be in a position to sell them to less environmentally efficient rivals. In the USA, as part of the Clean Air Act, trading in these permits has cut sulphur dioxide emissions faster and more cheaply than expected. The use of pollution permits appears to have two main advantages over traditional environmental regulations. First, it gives firms a financial incentive to reduce emissions for less than it would cost to buy permits, and secondly, by leaving it to companies to decide how and when to reduce emissions, it reduces not only the cost of compliance but also the bureaucracy required to enforce environmental regulations.