An excellent resource for teaching (and students in environmental economics). I would certainly use this if I was still teaching env-econ (a victim of my increased management role).
The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of
Emissions Taxes and Tradable Permits [PDF]
By Jay R. Corrigan
This classroom exercise illustrates the strengths and weaknesses of various regulatory frameworks aimed at internalizing negative externalities from pollution. Specifically, the exercise divides students into three groups—the government regulatory agency and two polluting firms—and allows them to work through a system of uniform command-and-control regulation, a tradable emissions permit framework, and an emissions tax. Students have the opportunity to observe how flexible, market-oriented regulatory frameworks can outperform inflexible command-and-control. More importantly given the ongoing debate about how best to regulate carbon dioxide emissions, students can also observe how the introduction of abatement-cost
uncertainty can cause one market-oriented solution to outperform another.
Keywords: classroom experiments, emissions taxes, pollution, tradable emissions permits.