Firms have flexibility in choosing whether to reduce emissions or purchase allowances from other firms based on their marginal abatement costs.

There is no significant difference between ETS and direct regulation as both policies essentially mandate emission reductions proportionate across all participating entities uniformly

An ETS imposes stricter limitations on emissions leading all firms uniformly towards greener technology adoption regardless of cost differences among competitors.

Direct regulation stimulates innovation more effectively since every firm has individual limits dictating technological improvements required for compliance purposes across industries indiscriminately.