What’s a University to do about Climate Change?
About a year ago, I blogged about the fossil fuel divestment movement at universities, arguing that it is unlikely to have any effect, and that even if it did it would be to raise fuel prices, which we could do more directly with a carbon tax. I said that those of us at the University of California (and other top universities) should fight climate change by researching the science and policy changes that could make a real difference.
In the last year, I’ve changed my mind. Not on divestment, but on what a university can do. I owe my enlightenment to Frank Wolak, my colleague, friend and sometimes co-author at that other top university in the bay area that I will not name. Frank wrote an excellent op-ed for the Los Angeles Times last May and has since co-authored a longer policy paper, both arguing that university action against climate change should start at home, with a campus carbon tax. All expenditures by campus units would be assessed a tax based on the GHG emissions associated with whatever they are buying or activity they are supporting. Of course, that raises issues like how large the tax should be and who should get the money, which I return to below.
Two decades of U.C. Berkeley’s Greenhouse Gas Emissions Source: http://sustainability.berkeley.edu/climate
The idea is brilliant. First, it avoids the hypocritical appearance of the divestment movement, marking fossil fuel producers as evil polluters while happily continuing to consume their product. Second, it puts real incentives in place to reduce GHG emissions and sets a price against which reduction strategies can be compared. Third, and probably most valuable, it makes the campus grapple with all the difficult real-world issues that come with trying to implement cost-effective national or global policy for carbon reduction. In doing so, it creates teachable moments that could fill many courses and inter-disciplinary research projects.
The standard knock on divestment is that it is pure symbolism, with no real effect on oil or coal companies. But in an important way, I think it may be worse than that. The symbolism is likely to be counter-productive if the divesting university takes no broad-based action to reduce its own carbon footprint. To an outsider it may sound like “Shame on fossil fuel companies for producing their products. Oh, and we have no credible plan to reduce our dependence on those fuels.” I’m among the many – at least from the reactions to divestment I’ve read– who thinks that divestment is just cheap talk, because it requires no sacrifice by the divesting organization.
Estimates of U.C. Berkeley’s 2012 carbon footprint Source: http://sustainability.berkeley.edu/climate
The analogy to the South Africa divestment movement is inapt in many ways, but in any case the South Africa divestment movement was accompanied by a boycott of South African goods.
A campus carbon tax skips the moral judgment distraction and gets right to demonstrating a plan for change, a market mechanism that rewards reductions in GHG emissions. By putting a price on emissions, it also confronts a reality that is too often sidestepped: reducing emissions is costly, and not all strategies for reduction are worthwhile. If you work on climate change issues at a university, you have seen plenty of shiny campus plans for alternative energy or energy efficiency that are never clear on the cost per ton of emissions reduction. A campus carbon tax would set a marker and naturally point the analysis towards cost effectiveness.
U.C. Berkeley’s Combined Heat and Power Plant. More information (and source of this photo) at: http://files.harc.edu/sites/gulfcoastchp/ProjectProfiles/UCBerkeley.pdf
Finally, the complexity of instituting a campus carbon tax is actually its strength. The campus – and countless student seminars and senior theses – would confront the challenges of real-world issues in GHG reduction:
- What GHG emissions count? Just emissions on campus or also from upstream? How far upstream?
- Practically, how will GHG emissions be measured? This is a particular challenge for the upstream emissions for goods and services coming from places with no GHG monitoring.
- Does the tax just cover GHGs from fossil fuels? What about agricultural products?
- How big should the tax be? A starting point might be California’s cap-and-trade price around $12/ton or the U.S. government’s estimate of the “social cost of carbon” (i.e., GHG emissions), which is now commonly cited as $37/ton. In any case, a lively debate on the right tax level would be educational for all.
- Should a unit on campus be allowed to buy offsets in order to reduce its tax liability? How would the campus determine if the offsets really reduce world GHGs (i.e., are really additional)?
- Some departments or faculty are more carbon-intensive than others, perhaps due to different energy usage (a chemistry lab versus English literature research) or different travel needs (an international diplomacy scholar versus a professor who focuses on the local urban economy). Should there be some compensation for those hit hardest by the tax? How to design that compensation without distorting incentives to reduce?
- What should be done with the tax revenues? Should they be redistributed to all faculty research funds on a per-capita basis, or used for scholarships or tuition reduction, or invested in energy efficiency and alternative energy projects?
- How would this affect the competitiveness of the university? Would it make it harder to excel in energy-intensive fields? Would it help make the school a leader in alternative energy research? Would it strengthen the school’s brand?
The beauty is that these are the same issues that come up in any broad-based scheme for GHG reduction whether at the city, county, state or national level. Doing it at the campus level would bring a deeper understanding of the challenge that we face in reducing GHGs and could lead to new insights about how to overcome those challenges. Students coming out of such an experience would be far more prepared to work in the companies, governments and non-governmental organizations that are grappling with climate change policy within all the constraints of the real world.
Though Frank Wolak proposed the campus carbon tax, Stanford shows no signs of adopting it, though Yale, Harvard and MIT, among others, are discussing it. Stanford divested its (practically non-existent) coal investments last year and there was a lot of back-patting, that is, until it came out that they are deepening investment in oil and natural gas.
It is time for U.C. Berkeley to adopt its traditional leadership role on environmental issues and get ahead of other universities on the campus carbon tax. Just the process of establishing and implementing the tax would be an immense learning experience for students, staff, faculty and administrators. And it would show that we take climate change so seriously that we are willing to adopt Stanford’s best ideas to address it.
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Severin Borenstein View All
Severin Borenstein is Professor of the Graduate School in the Economic Analysis and Policy Group at the Haas School of Business and Faculty Director of the Energy Institute at Haas. He received his A.B. from U.C. Berkeley and Ph.D. in Economics from M.I.T. His research focuses on the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. Borenstein is also a research associate of the National Bureau of Economic Research in Cambridge, MA. He served on the Board of Governors of the California Power Exchange from 1997 to 2003. During 1999-2000, he was a member of the California Attorney General's Gasoline Price Task Force. In 2012-13, he served on the Emissions Market Assessment Committee, which advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. In 2014, he was appointed to the California Energy Commission’s Petroleum Market Advisory Committee, which he chaired from 2015 until the Committee was dissolved in 2017. From 2015-2020, he served on the Advisory Council of the Bay Area Air Quality Management District. Since 2019, he has been a member of the Governing Board of the California Independent System Operator.
Energy Institute Blog 
This is a well-meaning, but problematic concept. As others have pointed out, unlike corporations universities do not practice full cost accounting and revenue allocation. A few allocate both costs and revenues to large units such as colleges withing the university, but most have relatively centralized accounting systems. Second, as was also pointed out, the cost of doing research funded by federal and state government has no provision for including a carbon tax. If a tax were to be imposed those units within the university that have large sponsored research programs would bear an unfair share of the cost of imposing a carbon tax. To change this would require a revision of the method by which indirect costs are calculated (circular A-21), something that would take a long time to accomplish and is unlikely to happen in the current political climate in Washington. It would be both misguided and divisive to force a carbon tax on universities at this time. It is far better to work collectively across campus to reduce carbon emissions through investments in renewable energy and energy efficiency.
This makes some sense but why go through these hoops when a producer carbon tax would accomplish the same thing with a lot less individual bean counting?
Because users must SEE the carbon-tax portion ‘itemized’. The underlying problem includes ‘wasteful usage’
Two thoughts on this. Just about every college has a sustainability office that could “itemize” its energy usage very quickly and not see major changes except when new buildings go up. Nickel and diming departments is a waste of people’s time. Also, if you are into symbolism, this may have some effect but most of us are on campuses that have made students and faculty aware of wasteful practice. Colleges are really not the place to expend this energy. It really would be more effective to get everyone on board by taxing the well head.
If hypocrisy is the major argument against divestment, then let’s do both: tax campus carbon AND divest. Simultaneously.
Exactly. Agree with this and Peter’s great idea above. UC system already has a goal to go climate neutral. Wouldn’t it be hypocritical to turn a blind eye to the carbon footprint of our investments? Also, Severin has overlooked the power of re-investment in clean energy and other sustainable industries once the dollars have been divested.
Thanks for another useful and interesting perspective on this Severin. There is a lot of pedagogical upside in this I can see. Here is one idea for an exercise that could come out of this…what if the University’s investment portfolio was assessed a tax based on the direct impact of its contents? In other words, what if the carbon intensity of an investment were accounted for by taxing a portion of the corporate emissions that one is “responsible” for through being a shareholder?
Take Exxon Mobil for example. The total corporate emissions in 2013 were 126 Million tonnes, resulting in about $5 billion in damages according to the federal $37/tonne number. The market capitalization is $393 billion with a 3% dividend and annual growth over the last 5 years of roughly 6%, so that means investors take about $35 billion a year from their stake. $5 / $35 is 14%, so according to the rough math, every dollar earned results in 14 cents of damages. Should the University investment office pay these into the tax? What if we actually use damage numbers closer to what seems likely for rational climate policy? More like $150-200 results in up to $0.75 tax per dollar earned. There are strong arguments that the real number is higher still, wiping out any gains from investment.
From this perspective one can link divestment with a tax conversation. If I take my personal opinion on what the cost of carbon should be in these calculations, the Exxon Mobil stock is a real dog.
Notes:
http://corporate.exxonmobil.com/en/current-issues/climate-policy/emissions-reduction/overview
https://www.google.com/finance?q=xom&ei=wuWFVPGeL–1iALCnIDgAQ
http://www.nature.com/news/global-warming-improve-economic-models-of-climate-change-1.14991
http://www.greenbiz.com/blog/2014/04/11/40-ton-below-true-cost-carbon
What control do individual faculty, staff, or departments for that matter, have over sources of GHG emissions? I suspect a central plant handles steam (heating & cooling) and PG&E your electricity. Taxing indirect GHG emissions (a professor’s electricity consumption) is a challenge for a number of reasons. Far more efficient would be to establish performance metrics with a feebate system. If offices in building X (can vary by energy efficiency of the building) consume less energy (electricity, steam, natural gas) than a specified performance standard….those offices get a budgetary rebate. If they consume more than the standard, they pay a fee. Professors and staff control their commute mode, a similar performance metric can be established for office/department commute GHGs. A baseline can be established for a department’s annual air miles, if annual miles are deduced department gets a rebate, if increased they pay a fee. System should be set up to target the emissions sources that university faculty, staff, and students can control.
In fact UC Berkeley Campus departments receive a lump-sum rebate if they reduce their overall energy use, to use as they see fit. It’s nice, but I don’t see how that stops whoever-it-is from opening windows in the Tan Hall corridor and unbalancing the air flow, resulting in higher energy costs for the building. I’m not sure how much I like the commute-mode “tax” given that AC Transit has seen fit to make bus service from my city to Berkeley almost unbearable.
This is a great issue for universities to think about. So thanks, Severin, for writing the posting. However, despite being a big fan of carbon taxes, I’m not sure the university is the best place to implement one. One needs to be cautious when proposing a market mechanism in what is essentially a non-market economy. Universities do not allocate costs to units in ways that necessarily facilitate using price signals to guide decision making at the local level. Looking at Tufts University, where I teach, we would face serious problems in implementing a carbon tax.
For example, the Tufts Medford campus has a central heating system that provides power to several schools as well as central administration buildings. The Department of Economics – or the School of Arts & Sciences, for that matter – has no ability to control the heating it consumes – and hence the emissions for which it is responsible. Nor is there any incentive for building users to engage in energy conservation measures to reduce consumption since the department does not pay any heating or electricity bills. The School of Arts & Sciences may pay some heating/electricity charges but it is not tied to actual consumption since we’re not metering usage at a level that would allow allocation of expenses in any meaningful way.
Tufts would need to make some substantial investments before it could implement a carbon tax. Perhaps the benefit of the tax would outweigh the costs. Or perhaps some other approach to reducing emissions might make more sense and finesse the need to develop the market facilitating mechanisms that are currently lacking.
Put simply, any consideration of a carbon tax at the university level should consider whether alternative policies might be preferable given the need to make the investments for a market mechanism to operate on campus.
I’m curious if Federal OMB A21 and A110 regulations would get in the way here, especially in exactly those academic departments whose energy use is likely to be highest. The NSF/NIH et. all could well argue that this sort of assessment would be an “inadmissable indirect cost assessment”. All research-related utility costs are calculated and totalled on a per-square-yard basis and added into the overall campus indirect cost rate (AKA “overhead”). Adding in an additional charge that is not directly driven by what is paid for fuel costs, to a lab’s research expenses, is likely to be disallowed. The possibility exists that this could be negotiated with the Feds but it would be folly to implement without taking this regulatory issue into account.
This is an interesting nuance that I hadn’t considered. There is likely some way to structure the fee to make it admissible, but it will take some thinking to do it right.
Yes – it looks like Yale is actually going to do it. Nordhaus is chairing the committee and there was a workshop held on it last week (Frank was there). My understanding is that Yale is ahead of Harvard and MIT in these discussions. It is indeed very complicated!
Yes, this is a terrific idea that some companies are also coming around to:
http://www.theguardian.com/sustainable-business/carbon-emissions-tax-microsoft-disney-shell
I’m most familiar with the Microsoft example, which turned the sustainability office into an internal source for funding of mitigation projects rather than a pestering group getting in the way of operations. This new source of funds allows internal champions to bust down the barriers inside organizations (which can be formidable).
The Microsoft example is an interesting case. The carbon price they arrived at is very low, and is based significantly on the ability to purchase low-cost (and non-additional) renewable energy certificates. But the net effect is that the number is too low to really have any decision-making impact. That would be a big risk at the university level as well – which brings you right back to the symbolism issue.
Yes, this is a general issue with carbon taxes that is not widely enough understood. The levels that would be politically practical are far lower than what is needed to generate significant behavioral changes. For the economy as a whole, the most important effect of a carbon tax would be influencing the investments and operations in the electricity sector (which have the lowest fuel prices, so highest % effects on price of a C charge, and lots of coal use). The effects of $10 or $20/tonne CO2 charges on demand would be trivial, but it would add 1 to 2 cents/kWh on the cost of a coal plant. The most important effect of the Microsoft example is to generate money that can be used for funding projects that reduce emissions.
How big should the tax be? Maybe the target is what should be set, and the tax should rise until the target was being met. (A declining cap, with trade would have the same effect, but harder to implement).
This is a bigger discussion that many have strong feelings about. The best feature of a tax in this instance is the certainty of what’s being agreed to. It’s very hard to plan investments when emissions prices are bouncing all over the place, and this is a problem for institutions who need to budget and commit funds ahead of time. The tax provides more certainty and will move the whole institution towards looking for opportunities and busting down the internal barriers to progress, without the difficult management and planning problems associated with the cap.