LESSON PLAN: Mercury Emissions: "Cap and Trade" Game
By Jason McGraw, a high school science teacher

Subjects: Economics

Time: 1 to 2 class periods

Lesson Objectives:
To develop an understanding of the role of government in regulating business
To develop an understanding of the role of government in protecting the environment
To develop decision-making skills based on cost and benefit
To develop an understanding of scarcity
To develop an understanding of how the free market can distribute resources

Competencies - Students will:

• Participate in an activity where they run a profitable or unprofitable power plant in changing market conditions
• Identify the role of government in protecting the environment
• Summarize the pros and cons of emissions credit trading
• Identify several market forces that can make "Cap and Trade" profitable or unprofitable for a business
  

Overview:
Mercury is dangerous to humans. High levels of mercury in a human can affect the nervous system and is especially harmful to unborn children in the womb. The most common way a person is exposed to mercury pollution is through eating fish. Lakes become contaminated when mercury released by power plants mixes with rain. The mercury is absorbed into the fatty tissues of fish, which pass that mercury on to humans when the fish is eaten.

In March, 2005, the Environmental Protection Agency announced new rules for mercury that power plants release into the air when they burn coal to make electricity. Coal-burning electric plants are the largest cause of avoidable mercury emissions. The plan, called the Clean Air Interstate Rule (CAIR), is designed to limit the tonnage of mercury that is released per year. The goal is to reduce mercury emissions from 48 tons per year to 38 tons per year in 2010 and 15 tons per year by 2018.

A major component of the CAIR plan is a "Cap and Trade" provision. All power plants have a limit on how much mercury they can release legally. If a power plant releases less than its allowed amount, it can sell its extra emission allowance to a company that is exceeding their mercury emissions limit. Over time, the total number of allowances will shrink until emissions are cut by more than two-thirds in 13 years. During this time, it is expected that scientists and engineers will develop inexpensive techniques to remove mercury from coal and coal smoke. That will allow the power companies to make these emissions cuts without raising electricity rates.

Students will experience how the free market can be used to reduce emission and not change the price of electricity to consumers and still be profitable for power companies. No knowledge of science is needed for this game.

Correlation to National Standards

Materials Needed (handouts provided in printer-friendly PDF format)

• NewsHour video segment: "EPA Limits Mercury Emissions," Mar. 15, 2005
• "Cap and Trade" Power Plant Cards (to be created by teacher. See Teacher Instruction sheet)
• Glossary
• "Cap and Trade" Balance Sheet for each student
• Calculator

To make these lesson plans better

Procedure
1. Have students watch the NewsHour video "EPA Limits Mercury Emissions." The students should think about the following questions as they view the video:

• Why is mercury harmful to humans?
• How will the industry be able to reduce emissions by two-thirds?
• How does "Cap and Trade" work?

After the video, ask the students for answers to the questions.

2. Next, the students will participate in the Mercury "Cap and Trade" Game. Make the index cards as outlined on the teacher instruction sheet. Then go over the instructions on the handouts with the students. To make the rules clear, work through the 2005-year as a group so that the students know how to make their calculations and decisions.

The rules of the game:

• Students should be divided into groups of 4-6 people. This is a "trade association".
• Encourage students to share ideas as they work.
• Each student should draw a Power Plant card. Information on this card should be written on the student's Balance Sheet. (Emission allowances until 2013 and electric prices are pre-printed on the balance sheet. Emissions for 2005 and operating costs of the plant are given on the Power Plant card.)
• Now, have students calculate emissions credit profit/loss, yearly profit, and total profit. (Directions for the calculations are given in the glossary.)
• For each year, students should decide whether or not to make capital improvements to reduce mercury emissions. The cost of improvements is based on the age of the plant. (This is explained for the students in the glossary.) NOTE: If a plant is consistently losing money year after year, a "real" power plant would likely be closed.
• After the balance sheet is filled, ask students to reflect on their experience using the questions on the Balance Sheets.

Optional variations:
To make the game more realistic, the teacher can change market conditions for a certain year or a number of years. For example:

• Coal quality is highly variable, even coal from the same mine. A certain type of coal may become "dirtier" or "cleaner", thus increasing or decreasing emissions.
• A state may choose to tighten mercury emissions at a faster pace than the CAIR plan.
• Technology breakthroughs may make capital improvements less expensive.
• The market price of emission credits may increase, especially as the emissions allowances shrink.
• Electricity prices may spike (like in California in 2000), or fall if supply suddenly increases (from nuclear power, for instance).
  

Assessment:

1. Have students perform an informal survey of which group carried a total profit in 2013.
   a. How old is their plant?
   b. Did market forces have an effect, good or bad?
   
2. Make a graph of the mercury emission allowances by year. Notice how the allowances slowly drop and then drop sharply. This drop assumes that "clean burning" technology will be developed to take the mercury out of emissions. By what year, according to the graph, will this clean technology be developed?
3. In a short essay, discuss the goals of the CAIR plan. Why does the government feel that it needs to be involved in the power industry?
4. Which market forces will help or hinder a power company under these new emissions trading rules?
5. What will happen to the coal industry if power plants cannot make a profit due to these regulations?

Correlation to National Education Standards:
(from the National Council on Economic Education - http://www.ncee.net/ea/standards/)
Standard 1: Scarcity
Productive resources are limited. Therefore, people can not have all the goods and services they want
Standard 2: Marginal Cost/Benefit
Effective decision making requires comparing the additional costs of alternatives with the additional benefits.
Standard 3: Allocation of Goods and Services
Different methods can be used to allocate goods and services. People acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.
Standard 16: Role of Government
There is an economic role for government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive.

About the Author Jason McGraw graduated from Mississippi State University with an M.S. in geoscience. He teaches high school science in the Chicago area and has worked for several years as an industrial chemist. He frequently conducts workshops for teachers on science content and science literacy.

To find out more about opportunities to contribute to this site, contact Leah Clapman at extra@newshour.org.