Yale Tries a Carbon Tax

Yale Tries a Carbon Tax

Claire O'Neill/The New York Times

Claire O'Neill/The New York Times

Yale University has a fair claim as the intellectual birthplace of the carbon tax. It was there, in the 1970s, that the economist William D. Nordhaus wrote the first of many papers proposing that companies be charged for using fossil fuels in order to address global warming.

This year, Yale went a step further, becoming one of the first American universities to actually adopt a carbon tax — charging all of its departments $40 for each ton of carbon dioxide produced from heating, cooling, and powering their buildings. This followed a yearlong experiment in which Yale economists tested the idea on 20 randomly selected buildings and found that it reduced energy waste significantly.

So what did Yale’s researchers learn about how carbon taxes might work in the real world?

One reason that economists often prefer simple carbon pricing to strict regulations is that carbon pricing is more flexible. Give people financial incentive to reduce their emissions and they’ll come up with creative ways to do so at the lowest cost. It’s one reason a small handful of conservatives in the United States has endorsed a carbon tax as a climate policy over, say, letting the Environmental Protection Agency prescribe to companies how to cut pollution.

At Yale, the researchers found that their carbon tax really did unleash a fair bit of creativity. Some residential halls responded by encouraging students to close their windows and adjust their radiators, offering prizes to those who saved the most energy. In some buildings, managers discovered that the heating and cooling systems were operating inefficiently — wasting heat when no one was around. Still others decided to install more efficient LED lighting and motion sensors to curb energy use. (You can read more details here.)

Of course, there were caveats. Yale’s carbon tax didn’t face any of the political blowback that carbon pricing might face elsewhere. “It’s a campus,” said Kenneth Gillingham, an economist who studied the program. “People are excited to try new things.”

Around the world, carbon pricing is slowly catching on. Forty countries have enacted either a carbon tax or cap-and-trade system to force polluters to pay for their emissions. Britain has nearly eliminated coal use with a modest carbon tax over the past two years. China plans to start a large carbon market next year.

But as recent research from Jesse Jenkins and Valerie Karplus of the Massachusetts Institute of Technology points out, the actual price on carbon in these programs tends to hover below $15 per ton of CO2, suggesting that there are political constraints on enacting ambitious pricing programs. (To halt climate change, many experts say, prices on carbon would likely have to be much, much higher.)

That explains why governments often resort to blunter regulations like renewable energy mandates, where the costs to consumers are less obvious and harder to see. Economists may argue that these programs are ultimately more expensive and less flexible than carbon pricing. But even the most elegant climate experiments don’t always translate perfectly into the world of politics.

This news item first appeared in The New York Times Climate Newsletter on Dec 13, 2017.