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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:

Amaintain a low unit price for emissions.

Bprevent the offshoring of emissions into other jurisdictions.

Cincrease the quantity of emissions allocated to the participants in the ETS.

Show Suggested Answer

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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Laura

4 months ago

Hmm, I'm not sure. But I do know that if I don't pass this exam, my carbon footprint will be the least of my problems!

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Rikki

4 months ago

I'm going with C. Increasing the quantity of emissions allocated seems like the logical goal here.

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Johnetta

3 months ago

I see your point, but I still think A is the most likely objective in this scenario.

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Margot

3 months ago

C seems like the best option to me. More emissions allocated means more room for companies to operate.

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Deandrea

3 months ago

I agree with B. We don't want emissions just being moved around to different places.

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Claribel

4 months ago

I think A makes more sense. Keeping the unit price low is important for the companies.

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Mabel

4 months 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 months ago

I disagree, I believe it's to prevent the offshoring of emissions into other jurisdictions.

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Mabel

4 months ago

I think the objective is to maintain a low unit price for emissions.

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Edgar

4 months 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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Makeda

3 months ago

I see your point, it does make sense to prioritize preventing offshoring.

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Moira

3 months ago

That's true, but I think preventing offshoring is the main goal here.

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Rolf

3 months ago

But wouldn't maintaining a low unit price for emissions also be a valid objective?

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Artie

4 months ago

I agree, preventing offshoring of emissions is important.

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