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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)


Contribute your Thoughts:

Laura
3 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
3 months ago
I'm going with C. Increasing the quantity of emissions allocated seems like the logical goal here.
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Johnetta
2 months ago
I see your point, but I still think A is the most likely objective in this scenario.
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Margot
2 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
3 months ago
I think A makes more sense. Keeping the unit price low is important for the companies.
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Mabel
3 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
2 months ago
I see your point, it does make sense to prioritize preventing offshoring.
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Moira
2 months ago
That's true, but I think preventing offshoring is the main goal here.
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Rolf
2 months ago
But wouldn't maintaining a low unit price for emissions also be a valid objective?
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Artie
3 months ago
I agree, preventing offshoring of emissions is important.
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