Like most major universities, Yale already has a plan to cut greenhouse gas emissions. But the school thinks it can do better–emissions actually slightly increased in 2014–and now it’s testing out a new tactic: imposing a new carbon fee on itself.
“There are a couple of problems with the institution-wide goals,” says William Nordhaus, the Yale economist who helped lead the creation of the new carbon charge. “One is that they’re the concerns of people who are sustainability officers–but they actually don’t reach down to the people who make the decisions on the ground. One of the key points in our mind was this was a way of making this feel like a shared policy–a shared goal widespread throughout the university.”
Under the new system, which the university is testing in a three-year pilot program, each department will be charged or credited based on how much their emissions deviate from averages in the past. Each ton of carbon dioxide will likely be charged $40, based on government estimates for the total social cost of carbon.
It’s not a tax–if a department’s emissions don’t change from the average, they won’t pay anything, and the school won’t be collecting the fees, because the program is revenue-neutral across the university. If a department’s emissions grow at the same rate as the rest of Yale, they might get a $100,000 charge, but then they’d get a $100,000 rebate. It’s only if they increase or decrease emissions that they’ll have to pay a fee, or get a little extra back.
“You have incentives on the margin if you change your use, but you don’t get a big hit to your program if you just do what you’re doing,” says Nordhaus. “Let’s take a real world example, say the School of Drama, they have a shoestring budget, and we really don’t want to hit their programs. We just want to make them aware that when they make decisions about how they redesign a theater, or what kind of lighting they use, just to be aware of the cost.”
Though departments may not to be able to make major changes in the short term–for example, if a facilities department controls the type of electricity they use–the incentive system is designed to help influence longer-term planning.
“Things are more under the control of departments and schools than people sometimes realize,” Nordhaus says. “For example, when you renovate space, or decide to build a new building, or get equipment for your laboratory, there are important energy-saving decisions involved in those. And those are the ones where we really think it’s important to have people be aware of the energy implications of what they do.”
He argues that the system could work for other large institutions, like corporations or city governments. “I think it’s much more effective,” he says. “You have some office of sustainability and they have lofty goals, and often people just don’t pay attention. There’s no incentive. So we think if an institution’s serious about it, this is a way they can make the policies felt down on the level of the departments or offices, or subsidiaries.”
Nordhaus, who has been working on climate economics for 40 years, also sees the revenue-neutral carbon charge as a system that could work at the national level. “If we want to do this, we need to have some type of price policy to make people aware in their everyday decisions that they’ll face the consequences of their emissions, or get the benefits of their reductions,” he says.