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CFA Institute Exam ESG-Investing Topic 1 Question 5 Discussion

Actual exam question for CFA Institute's ESG-Investing exam
Question #: 5
Topic #: 1
[All ESG-Investing Questions]

An emissions trading system (ETS) permits a high allocation of free allowances to energy-intensive companies. The most likely objective of this practice is to:

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Suggested Answer: B

Free allowances in an ETS are often allocated to energy-intensive companies to prevent the offshoring of emissions, also known as 'carbon leakage,' where companies relocate to jurisdictions with laxer environmental regulations. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)


by Tuyet at Nov 15, 2024, 05:42 PM

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Mabel
2 days ago
But wouldn't increasing the quantity of emissions allocated to participants in the ETS also be a valid objective?
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Donte
4 days ago
I disagree, I believe it's to prevent the offshoring of emissions into other jurisdictions.
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Mabel
5 days ago
I think the objective is to maintain a low unit price for emissions.
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Edgar
8 days ago
I think the answer is B. Preventing the offshoring of emissions makes the most sense as the objective of free allowances.
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