Pollution Permits and Carbon Trading (Online Lesson)

In this online lesson, we look at carbon markets as a solution for reducing negative externalities associated with CO2 emissions.

WHAT YOU'LL STUDY IN THIS ONLINE LESSON

• A review of the theory of negative externalities
• The diagrams and accompanying written analysis for explaining how pollution permits work
• The key evaluation points relating to permits and carbon trading
• A comparison between carbon taxes and permits/carbon trading

Additional teacher guidance is available at the end of this lesson. Thank you to Peter McGinn and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of carbon trading / pollution permits. Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities.

If you would like to download a simple PDF worksheet to accompany the video activities, you can download it here: Pollution Permits. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: VIDEO - MARKET FAILURE REMINDER

In this video, we briefly review the topic of negative (production) externalities, and think about applying this theory to the energy market.

ACTIVITY 2: VIDEO - HOW DO PERMITS WORK?

In this video, we consider how permits are intended to correct the market failure related to CO2 emissions, using diagrams and written analysis.

ACTIVITY 3: WIDER READING AND RESEARCH

It's important to stay as up-to-date as you can with your knowledge of examples related to your A level course. To help you with your wider knowledge of this topic, we've suggested some articles to read; remember that these are just a starting point for your own wider reading!

• This explainer from the BBC provides a nice overview of how carbon trading should work
• This article from an American science journal in April 2020 suggests that the European emissions scheme is quite effective, and is supported by this research paper from the International Carbon Action Partnership (note - this is a more challenging but excellent read!)
• In contrast, this article from the Financial Times suggests that the carbon market has really struggled to perform effectively as a result of the COVID-19 impact, and similarly, this article from The Guardianconsiders some of the broader reasons why carbon markets are failing

After reading through some of these articles, you should now have an opinion as to whether they are effective or not. Make a note of the key points that you thought were most important, and bear them in mind when you watch the next video.

ACTIVITY 4: VIDEO - EVALUATION

In this video, we introduce some of the key evaluation points in relation to carbon trading, including the difficulties in establishing the "right" level of permits and poor administration resulting from these information failures.

ACTIVITY 5: GAME - EMISSIONS TRADING SCHEMES EXAMPLES

Play this game of Match Up to find out more about real-world examples of ETS approaches.

ACTIVITY 6: VIDEO - COMPARING APPROACHES

In this video, we take a look at how you could answer an exam-style question in which you compare/contrast carbon taxes with traded carbon permits. Ask you teacher if they would like you to have a go at the essay title suggested in the video.

ADDITIONAL TEACHER GUIDANCE

This lesson comprises:

• around 20 minutes of video-based content, spread over 4 videos and accompanied by the PDF worksheet (which can be downloaded at the start of this lesson)
• around 20 minutes of student activity and thinking time across the 4 videos
• the opportunity to write an exam-style essay as part of the 4th video
• an interactive game in which students can apply their knowledge of carbon trading to the real-world
• a wide range of additional suggested reading material

Overall, we expect that the basic content in this lesson would take around 1 hour to complete, with additional time required for the reading and essay.