Reading Passage Question

Adapted and reprinted with the permission of the author, Jonathan Rappe.

So what exactly do we mean when we say “environmental markets” and how are these markets going to impact the business landscape? First, the basics: Anytime a unit of exchange arises from an underlying activity that is perceived to benefit the environment by either the buyer of that unit or the governing body that created the units of exchange, the main ingredients of an environmental market are present. In a cap-and-trade system, the governing body places a cap on the total amount of air or water pollution that may be emitted by issuing an equivalent number of allowances, denominated in units of pollution. These allowances may be issued by the government to the business entities that are regulated by the program in amounts similar to their expected production, to lessen the economic impact, or those entities may have to purchase the allowances from the government in an auction. At the end of each specified period, usually a year, the business entities will have to surrender a number of allowances, or permits, equal to their generation of pollution during the period. As the governing entity reduces the supply of allowances available to the market in each subsequent year, the price will go up unless the regulated businesses invest in technologies that will reduce their pollution per unit of output, thereby reducing their demand and the overall market demand for allowances. Environmental markets that are not set up as cap-and-trade markets in the U.S. include the state-level markets for renewable energy credits, which are granted to producers of renewable energy and given value because utilities must purchase an amount of these credits determined by the state, and the voluntary market for greenhouse-gas emissions, in which credits arising from a unit of greenhouses gas emissions avoided are granted to owners of qualifying project activities by accredited third-party verifiers and sold to voluntary buyers, primarily to conform with the buyer’s goal of becoming “carbon neutral.” Companies can claim to be carbon neutral if they purchase an amount of these credits for avoided greenhouse-gas emissions equivalent to the total amount of emissions they produce. This is increasingly important from a public relations and corporate responsibility perspective in the United States, even in the absence of federal legislation governing greenhouse-gas emissions.

“So what exactly do we mean when we say “environmental markets”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 5 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

Question 1
When the author uses the word allowances, he is referring to

1. the amount of pollution an entity is permitted to emit.
2. the funds a business must set aside to pay for pollution cleanup.
3. the total government penalty issued to those companies that pollute the air and water.
4. the economic impact of the reduction of emissions in a given year.
5. a system by which allowable pollution units are increased as pollution increases.

Question 2
The author believes that it is important for a company to become carbon neutral because

1. The company will benefit from a good public image.
2. The company will demonstrate its awareness of accountability.
3. The company will be complying with government regulations.

1. I only
2. II only
3. I and II
4. I and III
5. I, II, and III

Question 3
The author of this passage most likely would agree that

1. government regulations that control allowable greenhouse-gas emissions are too stringent.
2. the U.S. has a history of refusing to address environmental problems, a position that will adversely affect the growth of business in this country.
3. renewable resources in the United States are so abundant as to make regulations that govern their use superfluous.
4. in the future, more value will be placed on any activities that lessen the impact of development on natural systems.
5. the realistic goal of the environmental movement should be to completely eliminate air and water pollution in the United States.

Question 4
Which of the following, if true, would most weaken the author’s argument?

1. Even those companies that invest in pollution-reducing technologies will see a substantial increase in their demand for allowances.
2. Insufficient data exist, as of yet, to make conclusive claims about the efficacy of “green” programs in the corporate sector.
3. Researchers attempting to quantify the less-tangible benefits of green construction believe investment in water technologies and a renewed interest in solar-energy innovation will reward Wall Street investors.
4. A major U.S. bank recently announced that its new building will employ a heat exchange system that will gather heat from groundwater and use it to help heat the building in the winter.
5. The Climate Security Act of 2008 proposes a reduction in allowable carbon emissions but will allow a facility to use the allowances itself, sell them on a public carbon allowance exchange, or transfer them to another company for a negotiated price.

Question 5
The author’s attitude toward the companies that “claim to be carbon neutral” can best be described as

1. skeptical of the validity of their claim in light of continued noncompliance with government regulations.
2. indignant toward their refusal to change policy from abusive practices to voluntary compliance.
3. cautiously appreciative of their willingness to accept responsibility in the absence of government regulations.
4. totally detached and dismissive, as he rejects any arguments that run counter to his position.
5. resigned, as he accepts the postponement of the companies’ acquiescence to the government regulations currently in effect in the U.S.

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