Conception
In 2014, Yale convened an Earth Day summit with Sterling Professor of Economics William Nordhaus and Hillhouse Professor of Environmental Law and Policy Dan Esty, as well as students and staff members from the School of Forestry & Environmental Studies and the Office of Sustainability to discuss solutions to climate change. The “teach out” concluded with thoughts on how Yale might use its campus as a test bed for carbon pricing – a policy instrument regarded by climate scientists, economists, and political and business leaders as an important part of efforts to mitigate global climate change.
Later that year, a group of students representing Yale College and several graduate and professional schools submitted a letter to the administration outlining the importance of addressing global climate change on Yale’s campus. Inspired by a course taught by Professor Esty, their letter emphasized the potential for Yale – an institutional leader in education and research – to shed light on a pathway toward a low-carbon future through carbon pricing.
At the beginning of the 2014-2015 academic year, Yale President Peter Salovey formed a university task force chaired by Professor Nordhaus “to examine whether it would be feasible and effective for Yale to institute an internal carbon-pricing mechanism as part of its sustainability efforts.”
Students, faculty, and staff from a diverse range of disciplines served on the task force. After meeting for over six months and consulting with experts from academia and industry, as well as the Yale community, the task force recommended that Yale pilot an internal carbon charge in the 2015-2016 academic year.
On April 20, 2015, President Salovey shared the report of the Presidential Carbon Charge Task Force with the Yale community, and announced that Yale would move ahead with a pilot in 2015-2016.
Pilot Project
A steering committee composed of two project managers and administrators from the Offices of the President, Provost, Budget, Facilities, and Sustainability directed the pilot. Twenty buildings (i.e., “pilot units”) representative of Yale’s campus were assigned to one of four treatment groups. Three treatments received a new energy report and an incentive related to carbon pricing (i.e., “scheme”). One received the energy report only. Each scheme was a variation of the mechanisms proposed by the task force. They are characterized by information, target, redistribution, and investment.
- Information: Five pilot units received a monthly building energy report with a $40 per metric ton of carbon equivalent (MTCDE) price signal, without financial consequences.
- Target: Another five pilot units were subject to a reduction target of 1% below baseline; they paid or received $40 per MTCDE for emissions above or below this target value, respectively.
- Redistribution: A third group of five pilot units were compared to the group’s overall percent change in emissions from baseline, incurring charges or receiving rebates based on performance above or below this value; this scheme is revenue-neutral.
- Investment: The final group of five pilot units received a subsidy of 20% their baseline carbon charge for spending on self-guided energy actions; this modification simulated the second year of this scheme, in which a portion of carbon charge revenues would have been returned to buildings as rebates earmarked for internal education, conservation, and efficiency initiatives.
258 other campus buildings served as the control group. Unlike the treatment groups, the control group was not subject to a scheme and did not receive additional information or engagement. Between December 2015 and May 2016, nominated representatives from each of the twenty pilot units received six monthly utility reports. These reports included energy use and cost information, and a $40 per MTCDE charge applied to utilities used by the building. Yale’s $40 per MTCDE carbon price is based on the Federal Government’s 2014 estimate of the Social Cost of Carbon (SCC).
Emissions covered by Yale’s carbon price are the university’s stationary Scope 1 and Scope 2 greenhouse gas (GHG) emissions. While units saw a carbon charge on their monthly energy report, they did not incur monthly charges. Financials were settled at the end of the pilot instead. Yale’s pilot provided qualitative data from semi-structured interviews, an exit survey, and other observations. This qualitative research is useful in evaluating Yale’s various carbon pricing schemes, in particular their effects on participants’ levels of understanding, motivation, and action, collectively defined as effectiveness.
For a more comprehensive report, see the Report of the 2015-2016 Carbon Charge Pilot Project.
Lessons from the Pilot Project
After the conclusion of the pilot, the Presidential Carbon Charge Task Force had some outstanding questions regarding the implementation. Among the most important of these questions addressed the different treatment of self-supported and centrally-supported administrative units. Self-supported units are responsible for their own budgeting and fundraising. They are subject to both the profits and losses associated with their energy use changes, the costs of which are substantially larger than their carbon charge. Centrally-supported units do not have budgetary independence—most of their financial decisions are made in coordination with the Office of the Provost. Designing a carbon charge scheme which incentivizes energy consumption reductions for centrally-supported units is a challenge.
Another key finding was the importance of clear communication to generate an understanding of each scheme. Three of the four treatment groups reported “higher” or “much higher” levels of understanding after the conclusion of the six-month pilot, and more than half of the pilot units reported higher levels of motivation and action. Buildings in Scheme 1, which only received an energy bill detailing how much carbon the building was responsible for emitting, still reduced emissions by 7.4%—outpacing the control group, which reduced emissions by 4.3% during the pilot period.
A common piece of feedback from building administrators who participated in the pilot was that the leaderboard encouraged friendly competition among buildings. The leaderboard appeared on the monthly energy reports, and it ranked the top three buildings based on their emissions reductions compared to the baseline. Along the same lines, any future carbon charge schemes should be designed to avoid unfair competition, perverse incentives, and a level of predictability that permits gambling. A pricing scheme which disadvantages certain buildings, especially due to carbon-intensive investment decisions that were made before the announcement of the project, prevents the project from fully engaging the population. One promising solution to preserve fairness is to “grandfather” building modifications which were decided before the announcement of the charge.
Due to the nature of the redistribution scheme, the annual net charge or return for each building is usually small compared to other operating expenses. The monthly energy reports emphasize the marginal cost of carbon—in other words, how much each additional MTCDE emitted affects their annual net charge or return.