Carbon Markets on Trial

Overview

Economists have recommended putting a price on carbon for decades. In practice, governments have built cap-and-trade systems, passed carbon taxes and then repealed some of them, and companies have bought billions of dollars of voluntary offsets, some of which turned out to represent little or no real reduction. The United States has never passed a national carbon tax.

In this individual lab you use four public analysis tools to test carbon pricing from four directions: whether it cuts emissions, who pays for it, where the pollution goes, and where the money goes. You finish with a short essay that answers the lab’s question using your own results.

The lab builds on the En-ROADS lab (Week 5), where you set a global carbon price with a slider, and on the Carbon Markets & Climate Finance lectures (Week 14).

Key Dates

• Thu Nov 12 Lab released.
• Tue Nov 17 Carbon markets lecture: how allowances, taxes and credits work.
• Sun Nov 22, 11:59 pm Report due on Canvas.

Individual assignment, worth 6.7% of the course grade (100 points, entered in Canvas as 10).

The Tools

All four are free and run in a browser, apart from the offsets database, which downloads as an Excel file.

• U.S. Energy Policy Simulator (Energy Innovation). An open-source model of the US energy system with a carbon tax lever and dozens of other policies. Tutorial.
• Carbon Pricing Calculator (Resources for the Future). Compares carbon price designs on emissions, revenue, GDP and household impacts by income group.
• CARB Pollution Mapping Tool (California Air Resources Board). Greenhouse gas and local air pollutant emissions for large California facilities, with a cap-and-trade filter and the CalEnviroScreen 4.0 disadvantaged-community map layer.
• Voluntary Registry Offsets Database (Berkeley Carbon Trading Project). Every project, credit issuance and retirement on the six major voluntary registries.

Part 1: Does a Carbon Tax Cut Emissions? 20 pts

Tool: U.S. Energy Policy Simulator

1. Run the business-as-usual case and record US greenhouse gas emissions in 2030, 2040 and 2050.
2. Apply an economy-wide carbon tax. Choose a price path and say why you chose it. Record emissions in the same years and the change from business as usual.
3. Reset, and build a package without a carbon tax (for example clean electricity standards, vehicle standards, building codes and methane rules) that reaches roughly the same 2050 emissions.
4. Compare the two scenarios on emissions, public health (premature deaths avoided), and cost or cash flow. Include one figure per scenario.

Answer: Which approach costs less per ton avoided, and which would be easier to pass in Congress? Why do you think the US has relied on standards and subsidies instead of a carbon price?

Part 2: Who Pays? 20 pts

Tool: RFF Carbon Pricing Calculator

1. Select a carbon price close to the one you used in Part 1.
2. Compare at least three ways of using the revenue, for example equal dividends to households, cuts to payroll or income taxes, and deficit reduction.
3. For each, record the change in household well-being by income quintile, and total emissions and revenue. Present the results in one table and one chart.

Answer: Which revenue use protects the lowest-income households? Which helps the economy most? Canada returned most of its carbon tax revenue as rebates and still repealed the consumer tax in 2025. What does that suggest about the limits of getting the economics right?

Part 3: Where Does the Pollution Go? 20 pts

Tool: CARB Pollution Mapping Tool with CalEnviroScreen 4.0

1. Filter to facilities covered by California’s cap-and-trade program and turn on the SB 535 disadvantaged communities layer.
2. Choose six facilities in the same sector (for example refineries, power plants or cement), three inside disadvantaged communities and three outside.
3. For each, record greenhouse gas emissions and one local pollutant (PM_2.5 or NO_x) over the years available. Plot the trends.

Answer: A cap limits total emissions across the state but lets individual facilities buy allowances and keep emitting. Did emissions at your facilities in disadvantaged communities fall faster or slower than outside them? Compare your result with Cushing et al. (2018). What does cap-and-trade not guarantee for people living next to a facility?

Part 4: Where Does the Money Go? 15 pts

Tool: Voluntary Registry Offsets Database

1. Choose one project type that operates mainly in low- and middle-income countries: avoided deforestation (REDD+), clean cookstoves or household water treatment.
2. Report how many credits of that type have been issued and retired, in which countries, and which buyers retire the most where the data show it.
3. Pick one project and read its registry page: who developed it, who lives in the project area, and what benefits are claimed for them.

Answer: Using West et al. (2023) or Gill-Wiehl et al. (2024), how confident can a buyer be that one credit equals one ton? Even if a credit overstates the carbon, can the transfer of money to at-risk communities be worth it? Who should decide?

Part 5: Do Carbon Markets Work? 25 pts

A one-to-two page essay that answers the lab’s question using your results from Parts 1 to 4. Address:

• Do carbon prices and credits reduce emissions, by your evidence?
• Why has the US not adopted a national carbon tax, and would you support one? With what revenue use and what protections for overburdened communities?
• What is the strongest case for carbon markets, and the strongest case against them, on environmental justice grounds?

Report Format

• One PDF with five sections matching the parts above, plus references and an AI Use Statement.
• Every number you report comes from your own runs or downloads. State the tool version or download date, and the settings you used, so someone else could reproduce it.
• Figures need labeled axes and a one-sentence caption that says what the figure shows.

Readings

• Green, J. F. (2021). Does carbon pricing reduce emissions? A review of ex-post analyses. Environmental Research Letters, 16.
• Klenert, D., et al. (2018). Making carbon pricing work for citizens. Nature Climate Change.
• Mildenberger, M., Lachapelle, E., Harrison, K., & Stadelmann-Steffen, I. (2022). Limited impacts of carbon tax rebate programmes on public support for carbon pricing. Nature Climate Change.
• Cushing, L., et al. (2018). Carbon trading, co-pollutants, and environmental equity: Evidence from California’s cap-and-trade program (2011–2015). PLOS Medicine.
• West, T. A. P., et al. (2023). Action needed to make carbon offsets from forest conservation work for climate change mitigation. Science.
• Gill-Wiehl, A., Kammen, D. M., & Haya, B. K. (2024). Pervasive over-crediting from cookstove offset methodologies. Nature Sustainability.
• World Bank, Carbon Pricing Dashboard, for prices and coverage of every system worldwide.

Using Claude

You may use Claude to learn the tools, explain mechanisms and test your arguments. The runs, downloads and numbers have to be your own, and you should check every citation against the original source. Include a two-to-three sentence AI Use Statement at the end of the report.