Emissions Trading Scheme practical – because if you spend time making it, why not share it?

climate change threatens our existence

Earlier this year I was lecturing for a UWA Masters-level unit called ‘Climate Change Policy and Planning’.  This year the unit was delivered in an ‘intensive’ format, being one full day each week for five weeks.  Because of this I restructured my market-based policies lectures and exercises to give students an immersive theoretical experience.  In other words I spent an INORDINATE amount of time developing a practical-ish exercise to educate students on how an emissions trading scheme works, and for students to develop an understanding of the benefits of a trading scheme compared with a carbon price/tax.

The first part of my full day class was devoted to giving a lecture on the similarities and differences between an emissions trading scheme, a carbon price/tax and a reverse auction mechanism.  After a short break we got stuck into the practical exercise.  It was glorious… fifty-odd students, five per team, spread across about ten different offices.  It took these students about three hours to work through the practical, with a bit of help from the tutors.  Facial expressions moved steadily from absolute confusion to understanding, to glee when they managed to complete an emissions trade (or perhaps that was my own interpretation!).

In the interest of having my hard work not entirely wasted I’m sharing this practical with the internet-world of teachers interested in promoting understanding of climate change mitigation activities.  A word of warning – this practical is not for the faint hearted!  Students need to continuously work with each other on the worksheets, and I would recommend that all students write in pencil and bring an eraser (and that teachers print out extra copies of the worksheets just to be safe!).

Prior to starting the lab I reminded students that:

  • In a market you can only sell a commodity if someone is prepared to buy it.  The same is true of an emissions trading scheme – you can only buy certificates if someone is willing to sell them, and vice versa
  • Reducing emissions is typically cheaper initially, but then becomes more expensive over time, with more stringent reductions requirements (‘low hanging fruit’).  This is reflected in the practical with a different price for emissions reduction if you are to reduce emissions by 300 tonnes CO2 / kg or less, compared with over 300 tonnes CO2 / kg.
  • The emissions reduction price for the 300 tonnes CO2 / kg value is ONLY available if you are to reduce emissions by 300 or less, NOT on the first 300 tonnes CO2 / kg.
  • There are different forms of emissions trading schemes.  In the practical the price for each certificate is set by a regulator, whereas in reality this can be set by the market.  Additionally, the practical works on providing free permits/certificates (‘grandfathering’) unlike markets that function using an auction or bid-in process.

If completed properly (and with a bit of help!) students should be able to grasp the economic benefits of an emissions trading scheme over a carbon price, should have an understanding of problems associated with ‘carbon leakage’, can understand how differences in production costs versus emissions reduction costs can influence competitiveness of industries, and can have some understanding of why an ambitious emissions trading scheme can be politically sensitive.

Please attribute me as the source if you decide to use this practical. And I would love to know how you go using it!

Worksheets for ETS – with answers – UPDATED

Worksheets for ETS – without answers – UPDATED


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