Permit Market Game

The story

Your team runs a firm that must hold a permit for every unit it emits. Whatever you cannot cover with permits, you must abate, and abatement gets more expensive with every unit. The regulator sells a fixed number of permits at auction, then opens a market where firms trade with each other. Cheap abaters should end up selling to expensive abaters; whether that happens is up to you.

How we will play

  • Each team joins with a team name (one browser per team) and is assigned a firm: baseline emissions and a marginal abatement cost (MAC) curve. Your page draws your MAC against emissions, as in lecture. Keep it private.
  • The game runs two rounds, each with two timed phases:
    1. A sealed-bid auction, then
    2. An open trading market.
  • Round 2 repeats everything with a much tighter cap. If banking is on, permits you do not use in round 1 carry into round 2.

The auction

The auction is supply and demand. Supply is the fixed number of permits the regulator sells; your bids are your demand curve.

  • For each permit, enter the most you would pay for it. Leave a box blank if you do not want that permit.
  • When the clock runs out, every team’s bids are ranked from highest to lowest, and the top bids win until the permits run out.
  • Everyone pays the same price: the lowest winning bid. If you bid $15 and the price is $9, you pay $9.

Bids are sealed: nobody sees anyone else’s bids until the auction clears. While you bid, a “what if the price were…?” slider shows what your own bids would win, and cost, at any price. After the auction clears, your page shows the auction as supply and demand: all bids stacked into a demand curve (without team names), the fixed supply of permits, and the price where they meet. Think about what this pricing rule means for how honestly you should bid. Real allowance auctions (RGGI, California-Quebec, the EU ETS) are also sealed-bid, uniform-price auctions.

The market

After the auction clears you see the price, your allocation, and a live order book. Post a buy or sell order at any price; if it crosses an order on the other side it trades immediately at the resting order’s price, otherwise it waits in the book. You can cancel open orders. You cannot sell permits you do not hold.

Your page shows your live position: permits held, what you can still sell, and what your round score would be if the market closed right now.

Options your instructor may turn on

  • Cost shock: when the market opens, your MAC slope may change to 0.5, 1, or 1.5 times what it was (a third of firms get each; only you see yours). Bid knowing this could happen.
  • Free permits: instead of an auction, permits are handed out in proportion to each firm’s baseline emissions, as in the Acid Rain Program.
  • Pay-as-bid auction: each winner pays its own bid instead of a common price, as in EPA’s Acid Rain Program auctions.
  • Banking and borrowing: in the Round 1 market you choose how much to emit. Emit less than your permits to bank the rest for Round 2, or more to borrow from Round 2. Borrowed permits you have not covered by the end of Round 2 cost a penalty each.

Scoring

Round score = avoided abatement cost - auction spending - net market spending. The leaderboard ranks teams by how far they beat an efficiency benchmark computed for their own firm type, so a lucky firm assignment does not decide the winner. Watch for the debrief chart comparing the class’s bids to the true demand curve.

Notes for students

  • Keep your team page open; phases and timers update automatically.
  • Bids and orders lock when a phase’s countdown hits zero.
  • Overbuying is allowed but hurts: permits beyond your baseline are worthless unless banking carries them forward.

Last updated on Sep 24, 2026