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Pollution Permits and Opportunity Costs


A reading by Holt et al. in the International Review of Economics Education, provided by The Economics Network, UK, that can be used for a classroom/laboratory activity to teach your students to identify and account for opportunity costs in production decisions.

Students will learn about opportunity costs and tradable emission permits as a part of the cap and trade scheme. They will also learn of challenges in decision-making through a role-playing activity in which the students get to set production quantities within the limits of their emissions permits.

Use this tool to help your students find answers to:

  1. How does climate change impact the biosphere?
    1. Opportunity Cost
    2. Production Cost
    3. Cap and Trade
    4. Pollution/Emissions Permit
  1. What are the advantages and disadvantages of using tradable emissions permits in the context of climate change?
About Tool
Tool Name Teaching Opportunity Cost in an Emissions Permit Experiment
Discipline Economics  
Topic(s) in Discipline Opportunity Costs, Willingness to Pay, Carbon Pricing, Carbon Tax, Energy Economics, Consumer Choices, Fixed Market price, Tradable Pollution/ Emission Permits, Emission Permit Allocation, Cap and Trade Schemes, Carbon Emissions
Climate Topic Climate Economics
Type of tool Reading (pp 34 – 42) 
Grade Level Undergraduate
Location Global
Language English
Translation      –
Developed by Charles Holt, Erica Myers, Markus Wråke, Svante Mandell and Dallas Burtraw 
Hosted at International Review of Economics Education, provided by The Economics Network, UK 
Access Online/Offline
Computer Skills Basic


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