Companies in the aluminum sector emit greenhouse gases that are not internalized. Companies can reduce their emissions at different costs.

Which statement is correct?

Choose one answer.

1. After a Pigou tax is implemented, companies with the lowest emission reduction costs reduce their emissions the most. 2. This market is at its welfare maximum even without internalizing the externality. 3. too little aluminum is produced from a welfare perspective. 4. Setting an emissions cap per company achieves the internalization of the externality most cost-effectively. 5. the externality increases welfare in this market.

!! Answer 4 is wrong !!