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Emission permit

A permit that allows the holder to emit pollution up to stated level. The use of permits as a method of pollution control allows the total level of emissions to be controlled through the number of permits issued. Allowing emission permits to be traded ensures that they are used by the party that values them most, and, therefore, achieves an efficient allocation. Permits are an alternative to Pigouvian taxes as a method of pollution control. They form the basis of the EU Emissions Trading System.

Reference: Oxford Press Dictonary of Economics, 5th edt.