Carbon Taxes at Amherst College
And Other Schemes to Reduce the College’s Carbon Footprint
A report by James Corbett ’19
In 2015, the Amherst College Board of Trustees approved a statement on climate change acknowledging “the grave threat posed by climate change” and committing the College “to a path that will make sustainability a key consideration in both the College’s daily operations and its investment process.” There seems to be a relatively simple way for the College to make serious progress towards achieving its aim: implementing a carbon tax, or something similar, on campus.
Putting a tax on greenhouse gas emissions is gaining recognition as a powerful way to promote sustainability and encourage a shift away from fossil fuels and towards renewable energy sources. Carbon taxes, as they are known, are most economists’ preferred policy solution to climate change. These taxes have shown promise not just as governmental policy, as in Canada, but also as a way for large institutions to rein in their own emissions. Microsoft, for instance, has implemented an internal carbon tax, charging each of its departments for their emissions; the company claims that by doing so it has reduced its emissions by the equivalent of 7.5 million metric tons of carbon dioxide—375 times Amherst College’s yearly emissions—over three years. Yale University is experimenting with something similar, and saw average energy-usage reductions of around ten percent in the first year of the trial.
This report will analyze the potential for a carbon tax on the Amherst College campus—whether it would be effective and practical, and, crucially, whether it would be better than alternatives. Section one provides some background information about carbon taxes, section two describes the status of carbon tax legislation in Massachusetts, section three describes what other companies, colleges, and universities have done with respect to carbon taxes, section four outlines what a carbon tax would look like on campus and describes why it is not a viable option for Amherst College, and section five proposes alternatives to an internal carbon tax and discusses their relative merits.
- Some Background on Carbon Taxes
One of the strengths of carbon taxes is thatthey do not restrict anyone’s freedom of choice; people can choose to buy as much gasoline as they want, carbon taxes just make that choice more expensive. And the more expensive that fossil fuels become, the less that people will use them and the more attractive that renewable sources of energy will seem.
For instance, suppose the government imposed an extremely steep carbon tax, sendingthe price of gasoline up to $5 per gallon. People would drive much less, invest in more energy-efficient vehicles, and take public transit more often to save money. Higher energy prices would encourage consumers and companies to be less wasteful with heat and air conditioning, and energy companies would build more solar panels and wind turbines, which produce energy with minimal environmental impact.
So far, the evidence in favor of carbon taxes is promising. British Columbia has had a carbon tax in place since 2008, and it has been a success. The tax began at ten Canadian dollars per ton of carbon dioxide emissions, and grew to thirty Canadian dollars per ton by 2012—raising the price of gas by about nineteen cents per gallon. According to an analysis by economists at Duke University and the University of Ottawa, the tax reduced BC’s carbon emissions by between five and ten percent, “with negligible effects on [BC’s] economic performance.”[i] Thanks in part to BC’s success, about half of all Canadian provinces have a carbon tax, and the Canadian federal government is moving towards imposing a nationwide tax.[ii]
In the United States, progress towards carbon taxes has been slower, but support is growing. That support crosses party lines, too, at least among those who believe climate change is real and caused by humans. Several prominent Republicans have come out in support of carbon taxes, because they see it as a minimally intrusive, market-friendly way to reduce greenhouse gas emissions.[iii] Many states are currently considering carbon tax legislation, including Massachusetts.
- The Status of Carbon Taxes in Massachusetts
The Massachusetts State Legislature is currently considering two carbon-tax bills, both of which are excellent. Both impose a tax that starts low but rises to forty dollars per ton of carbon dioxide over a few years, which comes out to around 35 cents per gallon of gasoline. The first bill, known as the Barrett Bill, returns all of the revenue to state citizens and businesses. The second bill, known as the Benson Bill, returns 80% of the revenue to citizens and businesses, while the other 20% is used to finance green infrastructure and energy projects across the state. Both bills distribute the tax revenue to Massachusetts residents equally, with no regard to how much each person actually paid in to the tax. That way, poorer residents—who tend to produce less greenhouse gas emissions than wealthier residents—will tend to come out on top. Businesses get tax rebates in amounts that depend on the number of workers they employ.
Each of the bills has around sixty cosponsors—impressive given that the legislature has only 200 members total—and eighty legislators have cosponsored at least one of the bills. In the last session, when one of the same bills was put forward, it only received forty-four cosponsors.[iv] Representative Goldstein-Rose, who represents Amherst, does not know whether the bills will pass this session unless there is aswell of popular support or a minor energy crisis.[v] Even if they do not pass, however carbon taxes will continue to build support and the bills will surely be back for the next session.
There is a good chance, then, that Amherst College will be subjected to a carbon tax within the next ten years or so, because one of these bills, or something similar, will pass the legislature. If that were to happen, the College would have powerful new financial reasons, in addition to the ethical ones, to reduce its carbon footprint. For the past few years, The College has emitted around twenty thousand tons of carbon dioxide equivalent per year.[vi] Supposing one of the current carbon tax bills was to pass, this would eventually come out to an annual bill of $800,000.Because the Massachusetts carbon taxes would return all, or nearly all, of the tax money back to Massachusetts residents and businesses, much of this sum would be rebated back to the College, but even small emissions cuts could still save the College a huge amount of money.
- Carbon Taxes as an Institutional Policy
In the absence of state and federal policy to combat climate change, some companies and even some universities have been experimenting with carbon taxes of their own. Microsoft, for instance, has been widely recognized for its internal carbon tax.[vii] Each business unit is charged for its energy usage; when an executive goes on a business trip, for instance, the emissions associated with the flight are calculated and the executive’s business unit is charged a fee. In three years, Microsoft has reduced its emissions by the equivalent of 7.5 million metric tons of carbon dioxide, and saved itself ten million dollars’ worth of energy costs. In 2015 the tax was expected to collect around twenty million dollars total, all of which would be invested in reducing emissions and promoting sustainability.
Colleges and universities, too, are considering internal carbon taxes.Frank Wolak, director of the Program on Energy and Sustainable Development and Professor of Economics at Stanford, has written numerous papers calling for an extensive carbon tax at Stanford and other universities. First, he would have a University assess greenhouse gas emissions associated with “electricity use, consumption of campus transportation services, gas-emitting activities in research laboratories and buildings, and… waste disposal.”Then he would like to see “students pay an extra amount on their term bills for their emissions” while “faculty and staff would have their bill taken out of their paychecks.”[viii]Swarthmore and Vassar Colleges both investigated the potential benefits of a carbon tax before settling for less ambitious alternatives. Swarthmore chose to instead implement a three-pronged program that in many ways emulates a carbon tax; the program includes a “shadow price”—a rule that the College should construct new buildings as if the College were subject to a carbon tax. The program seems to have aimed at collecting money for green investments from departments in proportion to their emissions, but settled instead for a flat tax.[ix]
Among all the colleges and universities that have experimented with carbon taxes, however, the standout in terms of actual implementation—the University that most closely approaches Wolak’s ideal—is Yale University. However, not even Yale has instituted a full-fledged carbon tax. During the 2015-2016 academic year, Yale University experimented with various schemes—including a carbon tax—to reduce its emissions.[x] It tested each scheme on a small group of academic and administrative buildings (residential buildings were excluded, presumably because the students living there would stage a rebellion if their tuition varied by their energy usage). Only five buildings were subject to each scheme, but the results were excellent: the buildings subjected to either of the two carbon taxes reduced their emissions by around 11%. If Amherst College could achieve that kind of emissions reduction, it would save nearly a hundred thousand dollars per year—assuming there were a carbon tax system in place, that is. Yale expanded on its experiment in the 2016-2017 academic year by adding more buildings, but results are not yet available.
The Yale experiment had each participating building receive a report detailing that building’s energy usage (such reports were only possible thanks to Yale’s pre-existing, thorough energy metering). For the two carbon tax schemes, the basic idea was as follows (the details of each scheme were slightly different, but the general principles are the same). Each building was given an emissions reduction target of 1% less than the average of years past. If a building’s emissions exceeded the target, the building’s administration would pay the University $40 per ton on the difference between its target emissions and its actual emissions. And if a building emitted even less than the target, the University would pay the building’s administration using an identical formula. So, if a building’s target was 10 tons of carbon dioxide, and it ended up emitting 20, that building’s administration would owe Yale four hundred dollars. If schemes like this work, then it would be a great way for every college and university to cut its emissions—no large investments required.
- A Carbon Tax at Amherst College
If Amherst were to attempt to impose an internal carbon tax, it would face several difficulties. Carbon taxes of all kinds require accurate information. If you are going to bill people for their energy use, you must know exactly how much energy they are using.Until recently, Amherst College had little information about how much energy individual buildings used; only data for the entire campus was available. However, in the 2016-2017 academic year the College spent four hundred thousand dollars installing energy meters on some of the largest buildings around campus. Now more precise information is available, but an effective carbon tax would at the very least require energy meters on every academic and administrative building, which could cost an additional five hundred thousand to one million dollars.
Even ifAmherst did have meters on every building, some potentially fatal problems remain. If Amherst was to bill every professor and administrator for their respective energy use, it would need incredibly detailed information. Every single office would need a separate energy meter. Each office would also need individual climate controls, so the carbon tax could motivate professors and administrators not to waste energy on unnecessary heating and cooling. Heating and cooling require a huge amount of energy, so leaving them out of the carbon tax would be a huge loss.
But what if Amherst were to try something more like Yale’s carbon tax scheme, and billed groups of people instead of individuals? Departments, for instance, have their own budgets, so the tax could collect from there rather than from professors’ and administrators’ salaries. This would undoubtedly be a more popular source of revenue. Problems remain, however.Departments are often split across buildings and some professors are members of multiple departments, and the message that the carbon tax sends would likely be blurred beyond recognition. Consider, for instance, the philosophy department. The philosophy department is relatively small, with only six full-time faculty members. Five of the philosophy professors have offices in Cooper House, while the sixth has an office in Merrill. The College already has meters for both these buildings, but it would be difficult to isolate the philosophy department’s contribution to Cooper House’s energy usage, let alone to Merrill’s.
For another example, consider the English Department. Most English professors have offices in Johnson Chapel, but there are some who have offices elsewhere. But because Johnson Chapel is often used for events and gatherings which the English Department has no control over (and which probably account for no small part of the Chapel’s energy usage), the English Department should not be charged for the energy usage of all of Johnson Chapel. However, separating what the English Department is responsible for from what it is not is simply not practical. It is not just a question of fairness, but of efficacy. If the English Department was billed for all of Johnson Chapel’s energy usage, the Department would have little incentive to reduce its energy usage. No matter what it did, its energy use bill would be largely the same. Assume, for instance, that in 2020 the English Department accounts for half the Chapel’s energy usage, while the actual chapel room (the event space) accounts for the other half. In 2021 the College applies an internal carbon tax, and the English Department cuts its energy usage by 1%, while the chapel room’s energy usage stays constant. Overall, this means that Johnson Chapel’s energy consumption falls by 0.5%. The English Department would not be fully rewarded for its effort, and since the English Department would probably have figured this out, the professors would probably not be especially motivated to reduce their emissions (at least, if they remained motivated, it wouldn’t be because of the money—but the financial motivation the whole point of the tax).
These problems would only worsen in the cases of Merrill or Frost. Merrill hosts the Psychology, Chemistry, and Physics departments, as well as a library, labs, and the Moss Quantitative Center; Frost hosts an equally diverse mix of administrative offices and even a professor or two.
- Alternatives to a Full-Fledged Internal Carbon Tax
One of the strengths of carbon taxes—the sort where each individual pays for their own energy consumption—is that it motivates each and every person to behave in a sustainable manner without them even having to think about it. That is, people who might not feel especially strongly about the environment will still avoid unnecessary waste, because such waste will cost them. On the opposite side of the policy spectrum are sustainability initiatives run by a central office that enforces standards.
Making departments pay for their emissions would seem a sort of compromise between these two approaches. But in fact, a more centralized approach is probably superior for Amherst College. Professors probably do not care all that much about their department budgets (not as much as they care about their salaries, anyway). So even with accurate information, a carbon tax that draws from department budgets would probably result in either one highly-motivated person responsible for the budget or several not-very-motivated people who share responsibility for the budget between themselves. But in this case the College might as well just hire someone who would be responsible for making sure that energy is used efficiently.
Shadow Pricing
Shadow pricing is, basically, making purchases and investment decisions as if there were a carbon tax (hence the “shadow”). Swarthmore College, for instance, has committed to using a shadow price of $40 per ton of carbon dioxide emissions on all new construction projects, which means that estimates of a construction project’s cost must include the building’s futureenergy costs. All else equal, the more energy-efficient a potential building is, the cheaper (and therefore more appealing) it will look to Swarthmore administrators. Consider the figure below, taken from Swarthmore’s shadow pricing webpage. Heating a building with a geothermal well would be more expensive than using a natural gas boiler, but once the cost of carbon is factored in—thanks to the shadow price—the geothermal well is less expensive. In effect, Swarthmore College has given its administrators awell-defined guideline for taking proper account of energy efficiency.[xi]