The following is an audio transcript of the video lesson plan Cap and Trade Game.

Hi, I’m Laura, and I’ll be sharing with you the activity Cap and Trade Game.

This lesson is a game that simulates a cap and trade system to limit greenhouse gas emissions. It helps students think critically about the benefits and challenges of cap and trade as a policy choice.

This lesson is appropriate for high school with strong ties to Human Geography and Environmental Science, both AP and general, as well as economics, geography, and government.

In this lesson, students will be able to explain the concept of Cap and Trade in their own words, identify advantages and disadvantages of cap and trade policies, and they’ll record data, track financial transactions, and make strategic decisions in order for their business to survive.

For the game, every student will need two dice and one million dollars of play money printed and cut out from the lesson plan. For each group, you’ll also need to print and cut out upgrade cards, print a copy of the rules of the game, and you’ll need to gather about 75 poker chips or counter chips per group.

The lesson starts with students thinking about where greenhouse gas emissions originate. And we provide this graph to help you jump start discussion. Since electricity production is a huge source, in the game, each student will represent one power plant generating electricity and emitting greenhouse gasses.

Let’s start by dividing students into small groups of 5-7 each. Each group will represent all of the power plants operating under one cap and trade system. Within the group, each student will do their best to keep their power plant business running while also reducing greenhouse gas emissions.
So pass out one million dollars and a pair of dice to every student.

For the first round, every student will be allowed to emit 8 units of greenhouse gasses. This is their business’s “CAP” in our cap and trade system. Pass out eight chips to each student to represent these allowances.

Greenhouse gas emissions can be unpredictable and might vary year to year. Everyone rolls their dice. The number they get represents the units of greenhouse gas emissions that their power plant actually creates during this round.

The chips represent how much they’re allowed to produce. The dice represent how much they actually produce.

For every unit they create, they pay one allowance chip. If they create more emissions than allowances, they pay all of their chips, and then pay a fine of $100,000 for each unit of emissions that exceeds their allowance. If they have low emissions during a round and allowance chips leftover, great! They can save the chips for later.

For example, Carol and Katie each start with 8 allowances. Carol rolls a 6 for her emissions. She pays 6 allowance chips and keeps two chips for later. Katie rolls a ten. She pays all 8 of her chips and also has to pay $200,000 in fines for the two extra emissions that exceeded her allowance cap.

If it’s helpful, students can track their emissions, allowances, and profits using a chart included in the lesson plan.

And now we get to the fun part. We have the chance to trade any leftover, extra allowance chips with the other students in our group. This is the “TRADE” part of our cap and trade system. Students that want to sell their extra chips can set the price to whatever they want. And prices can change throughout the game.

Once we’ve had the chance to trade, we have one more important economic choice to make: do we want to spend money in order to upgrade our factory to be more green before the next round?

There are four possible upgrades students can make to their plant, assuming they have the money to purchase them. Some upgrades provide extra money and some help students get a more beneficial roll in the future.

We’ve just finished round one and are about to start round two. But there’s a catch. Our cap is going to change. Instead of receiving 8 allowances, for round two we’ll only receive 7. Pass out seven chips to each student for round two. And head’s up! The allowances will reduce by one every single round of the game.

Now that our businesses have new allowance chips, roll the dice and see how many emissions they create during this round. Then hand over allowance chips, pay any fines, trade, and make upgrades. This continues through 8 rounds of the game.

After eight rounds our cap is 0. Some of our power plants made business decisions that have allowed them to survive. Some businesses went bankrupt. The player with the most money wins!

Now that we’ve seen cap and trade in action, it’s time to analyze it as a policy choice to reduce emissions. Discussion includes questions like: How did emissions change in your group throughout the game? How did the price of allowances change? What are some pros and cons of this strategy?

Students might notice that some businesses went bankrupt, and think about what that does to the cost of electricity for customers. Some might notice how many rounds it took to have an impact on emission levels. Everyone should have a better understanding of how this policy works, and be able to think through some of the implications of implementing this type of policy in the real world using evidence from the simulation.

I hope you enjoyed Cap and Trade. For more lessons like this one, go to