Use of Revenues

CENTRAL CHALLENGE: What should the revenues from the carbon charge be used for? What are the pros and cons of a revenue-neutral carbon pricing scheme versus one that earmarks funding for sustainability?

Yale's carbon charge schemes were designed primarily to encourage behavior change and increase awareness within buildings' constituencies for reducing energy use. This focus on decentralized behavior change is why the schemes were revenue-neutral or nearly revenue-neutral, instead of a straight tax to raise revenues for centralized investment in sustainability.

Yale’s carbon charge is therefore similar to a “cap-and-dividend” or “tax-and-dividend” scheme, where a portion or all of revenues from the carbon fee are returned to taxpayers without restriction. It is different from models such as the Microsoft’s carbon fee, whose revenues are used for energy efficiency, renewable energy and carbon offset investments. Microsoft’s business units can get back some or all of the carbon charges, but only if they submit a proposal to improve efficiency or drive innovation that has climate benefits. Only one of the four schemes in the Yale’s carbon charge pilot tested an energy efficiency earmark.

Yale also consciously avoided the redistribution of revenues in service of some other policy goal (e.g., financial aid), even though there is tendency among governments to do so (e.g., use of carbon tax revenues for public priorities other than emission reduction such as health, education and infrastructure). The university did not want to add another layer of debate on where the revenues should go.

Discussion Questions

• How might Yale's scheme have differed if its policy objective were about immediate, guaranteed emissions reductions, instead of behavior change?
• What are the pros and cons of a pure tax to get incentives right versus one to generate revenues for sustainability investments? One challenge building managers faced during the pilot was lack of capacity and funding to implement the desirable energy efficiency investments (see “Pilot Implementation at the Building Level” section). Will this be addressed if the Yale’s carbon charge is not revenue-neutral?