A Deeper Look at Tradeable Allowances 

Very good video. However, I am wondering how are the tradable allowance distributed by the government in the first place? Like how many tradeable allowance units are given to factory A and B? Does a factory with higher production in the past get more than a smaller factory? Is that not somehow changing the competitiveness of smaller companies for the worse because they get less allowances they can sell? The possibility to buy tradeable allowances to reduce emissions might seem compelling. The crucial element of this concept is how many total units the government is giving to the companies. You should keep in mind that the government has an interest to keep growing the economy which involves emissions. Now if the government takes into account that some organizations or individuals will buy the certificates just to tear them up and hands out more permits in the first place, then you cannot actually reduce pollution. Also companies may choose to move their pollution intensive production sites to less developed countries where regulatory standards are lower and then import the final product to avoid the pollution tax. So it is clear that countries must work together to effectively combat climate change. Finally, would it not be smarter if the government was selling the tradeable permits instead of just handing them out? Then they could set the price which would serve like a pollution tax.

Would buying and tearing the pollution allowances shift supply left and demand right? Or just supply? It seems similar to the slave redemption video but the market seems different in that there are a fixed number of pollution allowances.