Yale Context & History of the Carbon Charge

In 2013, a group of students called “Fossil Free Yale” urged the University to divest its endowment from fossil fuels as part of a global divestment movement that was spreading across governments, universities, private foundations and other institutions. Following a referendum by the Yale College Council, which indicated substantial support among undergraduate students for fossil fuel divestment at the University, Fossil Free Yale submitted a proposal for divestment to the Yale Corporations’ Committee on Investor Responsibility (CCIR).^[1]

On August 27, 2014, the CCIR issued a statement endorsing sound governmental policies and business practices to reduce the threat of climate change and announced a new policy guideline on Yale’s investments and climate change:

Yale will generally support reasonable and well-constructed shareholder resolutions seeking company disclosure of greenhouse gas emissions, analyses of the impact of climate change on a company’s business activities, strategies designed to reduce the company’s long-term impact on the global climate, and company support of sound and effective governmental policies on climate change.^[2]

However, the CCIR decided against divestment, arguing that the greatest impact Yale would have in addressing climate change was instead through its core mission in research, scholarship and education. On the same day, Yale President Peter Salovey released a letter concurring that:

Yale has a role as an investor, but […] Yale’s most important contributions come from its teaching and research, its internal practices, and its leadership by example and encouragement among peer institutions.^[3]

President Salovey then announced six new initiatives to expand Yale’s sustainability efforts, one of which was the formation of a Presidential Carbon Charge Task Force to determine whether a carbon charge should be introduced at Yale, and if so how. The Carbon Charge Task Force was accompanied by a $21 million capital investment for energy conservation, expanded deployment of renewable energy, GHG disclosure and verification, green innovation fellowships for student ventures, and school-specific sustainability plans. While associated with divestment conversations, the history of the Task Force is described in the Yale Carbon Charge Initial Pilot report as such:

The idea for the task force started at an Earth Day event convened by the Offices of the President and Sustainability in 2014. Students, faculty, and staff were sharing thoughts on how Yale might use its campus as a test-bed for environmental policy when Professor William Nordhaus proposed that the university experiment with carbon pricing. Many economists, climate scientists, policymakers, and business leaders regard this financial tool as an important part of efforts to mitigate climate change.

Following this event, undergraduate and graduate students from Professor Daniel Esty’s class wrote a letter to Yale’s administration recommending that the campus serve as a living lab for experimenting with carbon pricing. At the same time, the Office of Sustainability had been researching internal carbon pricing in the private sector. This campus-wide interest and thought-leadership culminated in the creation of Yale’s Presidential Carbon Charge Task Force.

The Task Force was chaired by Sterling Professor of Economics William Nordhaus and included a number of professors, students and administrators with deep expertise and involvement in sustainability at the University.^[4] Over the course of six months, the Task Force had bi-weekly meetings, held interviews and discussions with faculty, students, administrators and outside experts, formed four Working Groups to investigate the different aspects of a carbon charge, and organized a campus-wide prize competition to solicit ideas for energy innovation. In April 2015, the Task Force concluded that a carbon charge was both feasible and effective and recommended a pilot of the concept during the 2015-2016 academic year.

The Task Force based its recommendation on the following advantages of a carbon charge:

• It provides incentives for individuals and administrative units to reduce emissions;
• It extends the reach of Yale’s policies on climate change and energy use to more people and units on campus. By contrast, Yale’s quantitative emission targets are mostly the concerns of central units such as facilities or the sustainability office;
• It prepares Yale for a higher carbon-price future;
• It integrates academics with operations and provides faculty and students with opportunities to engage with internal policymaking; and
• It expands Yale’s role as a pioneer in the research, teaching and design of practical climate and energy solutions, thereby contributing to society’s learning about ways to slow climate change while advancing Yale’s educational mission.

The Task Force recommended that Yale set the price at the social cost of carbon, which is the social damage caused by a ton of CO2 emissions and is estimated by the Federal Government’s Interagency Working Group on the Social Cost of Carbon to be $40 per tonne of CO2e^[5] for 2015, rising at 3% per year plus inflation. The Task Force proposed two possible carbon pricing schemes, one of which would guarantee revenue-neutrality and the other would not. Revenue-neutrality means that the sum of all carbon charges and rebates to all units would be zero. The carbon charge would however not be revenue-neutral for individual administrative units – those whose emissions grow faster than the university average would incur a net charge, while units whose emissions grow slower than the average would receive a rebate.

There was disagreement within the Task Force over the desirability of revenue-neutrality. On one hand, revenue-neutrality is key to generate political buy-in for carbon pricing in many countries, including the US and Canada, as it avoids the disproportionate impacts of a carbon price on energy-intensive sectors. Similarly at Yale, revenue-neutrality is important to avoid penalizing heavy energy users such as IT, the medical school and physics department (by returning some of the carbon charges back to them at the end of the fiscal year). Revenue-neutrality also provides cost certainty to the University as a whole. However, a revenue-neutral system with a rebate mechanism reduces the salience of the carbon price signal (see Price signals and information section). Despite the disagreement, an executive decision was made to recommend revenue-neutrality or near revenue-neutrality for the carbon charge program.

A Steering Committee and a Project Team were then formed to implement the pilot. The Steering Committee^[6] consisted of staff in key administrative functions that would need to interact in order to oversee the carbon charge. The Project Team included two staff members who were responsible for the design, implementation and evaluation of the pilot project (see Organizational Chart). Some members of the Steering Committee and Project Team were also members of the original Task Force. The Steering Committee and Project Team noticed several issues with the two schemes proposed by the Task Force: both would result in reduced price signals, and one could allow total university emissions to increase year after year due to the lack of a cap, as well as creating an unlevelled playing field because buildings with different marginal costs of abatement would be compared against each other. However, a collective decision was made to continue their testing instead of waiting for the perfect design. Two additional schemes were also added – one to test the impact of information in isolation by distributing an energy report to participants with indicative carbon charges but no financial consequences, and another to test the effectiveness of an energy efficiency earmark (i.e., provision of funding designated for energy efficiency investments only). More information on each scheme and their pros and cons is provided in the “Scheme selection” section below.

The pilot was implemented between December 2015 and May 2016. The following sections discuss the key design features, implementation, results and key challenges of the pilot.

^[1] Fossil Free Yale. (2014, February 6). About Us. https://fossilfreeyale.org/about

^[2] Yale Corporation Committee on Investor Responsibility. (2014, August 27). Statement. http://acir.yale.edu/pdf%20and%20hyperlinks/CCIR%20Statement%20(2014).pdf

^[3] Salovey, P. (2014, August 27). Formation of Presidential Task Force. Yale Carbon Charge Project. http://carbon.yale.edu/reports/announcements/formation-task-force

^[4] Members of the Task Force included William Nordhaus, Sterling Professor of Economics and Chair of the Task Force; Daniel Esty, Professor of Environmental Law and Policy; Bradford Gentry, Co-chair of Yale’s Sustainability Advisory Council and Associate Dean for Professional Practice at the School of Forestry and Environmental Studies; Peter Glazer, Professor and Chairman of the Department of Therapeutic Radiology; Sharon Oster, Professor of Management & Entrepreneurship & Economics; Mark Pagani, Professor of Geology and Geophysics and Director of the Yale Climate & Energy Institute; Frances Rosenbluth, Professor of Political Science; Ted Snyder, Dean of School of Management; John Bollier, Associate Vice President for Facilities; Virginia Chapman, Director of the Office of Sustainability; Linda Koch Lorimer, Vice President for Global and Strategic Initiatives; Ted Wittenstein, Director of International Relations & Leadership Programs for Yale’s Office of International Affairs; Robin Canavan, Graduate Student in Geology & Geophysics; Sophie Janaskie, Undergraduate Student in Environmental Engineering; and Jennifer Milikowsky, Graduate Student at the School of Management and School of Forestry and Environmental Studies.

^[5] Carbon dioxide equivalent (CO₂e) is a measure used to compare the emissions from various greenhouse gases based upon their global warming potential.

^[6] The Steering Committee included Benjamin Polak, Provost and William C. Brainard Professor of Economics; Timothy Pavlis, Assistant Vice President for Strategic Analysis and Institutional Research; John Bollier, Associate Vice President for Facilities; Virginia Chapman, Director, Office of Sustainability; Martha Highsmith, Senior Advisor, Office of the President and Lecturer, Divinity School; Julie Paquette, Director of Energy Management; and Edward Wittenstein, Director, International Relations & Leadership Programs.