The article explores how cap and trade systems, like the one in the EU, affect companies' decisions on investments and production. It looks at how giving out emission permits for free can impact firms' choices, particularly those based on their past output levels or facilities. The research suggests that free permits based on installed facilities can influence firms to make less efficient investment decisions. The study aims to understand how these factors shape firms' behaviors and to determine the best ways to design emission trading systems for optimal outcomes.