internal carbon pricing - cbey.yale.edu carbon... · carbon-pricing literature. our policy...

Ethan Addicott, Yale MESc ‘17

Alhasan Badahdah, Yale MEM ‘17

Luke Elder, Yale MEM & MBA ‘19

Weiliang Tan, Yale-NUS College ‘18

POLICY FRAMEWORK AND CASE STUDIES

Internal Carbon Pricing

INTERNAL CARBON PRICINGPolicy Framework and Case Studies

ACKNOWLEDGMENTSThisworkwassupportedbyYaleCenterforBusinessandtheEnvironment.

TheauthorsareEthanAddicott,YaleMESc2017,AlhasanBadahdah,YaleMEM2017,LukeElder,YaleMEM/MBACandidate2019,andWeiliangTan,YaleNUSCollege2018.

CaseyR.Pickett,DirectoroftheCarbonChargeatYaleUniversity,developedtheideaforthisinstitutional-carbon-charge-policyframework.TheauthorsaregratefulfortheadviceandcommentsfromCaseyR.Pickett;KennethGillingham,AssociateProfessorofEconomicsatYaleUniversity;andthemembersoftheSpring2017EnergyEconomicsandPolicyAnalysiscourse.

TheauthorswereadvisedbyStuartDeCew,ProgramDirectoratYaleCenterforBusinessandtheEnvironment.ThereportwaseditedbyKatFriedrich,NewsEditoratCleanEnergyFinanceForumatYaleCenterforBusinessandtheEnvironment.ThegraphicdesignwascreatedbyHenkvanAssen,SeniorCriticatYaleUniversitySchoolofArt,togetherwithIgorKorenfeldandMeghanLynch,DesignersatHvADESIGN.

Theauthorsthanktheseindividualsfortheirvaluableinsights,support,andassistance

COPYRIGHTForpermissiontoreprint,reproduce,orredistributeanyofthecontentsofthisreportinawaythatgoesbeyondfairuse,pleaseemailYaleCenterforBusinessandtheEnvironment([email protected]).

03


Executive SummaryThisreportseekstoaddressthequestionofhowanorganizationshoulddesignandimplementaninternalcarboncharge.Internalcarbonpricingisapowerfultooltheprivatesectorcanemploytoreducecarbonemissions.

Whilepolicytoolsandguidanceexistforcarbonpricingatthenationallevel,itisnotclearhowimplementationmightdifferinabusinessenvironmentoranothersetting.Ourprojectseekstosupplementthegrowingcarbon-pricingliterature,giventhepromiseofinternalcarbon-chargeprogramsinaddressingclimatechange.

Carbonpricingworkstoshiftthecostofcarbonfromincreasedhealthcarecostsandexacerbatedenvironmentaldamagetopaymentatthesourceofpollution.Bydoingso,itincentivizescarbon-emissionsreductionsandcarbon-efficientdevelopment.

Corporations’internalcarbonpricingattemptstocorrecttheincentivestructurethatunderpinsconsumptionchoicesrelatedtogreenhousegasemissions.

Internalcarbonpricingallowscompaniestoassessthefinancialimplicationsoftheircarbonemissionsandencourageincreasedenergyefficiency.Todate,around1,400companieshavereportedimplementingorplanningcarbonpricestoregulatetheircarbonemissions.

Corporationscanactcollectivelywithgovernmentstoreachthegoalofdecarbonization.

Toprovideguidanceondesigninginternalcarbon-chargeprograms,weprovidetwocorecontributions:1. apolicyframeworkofkeydecisions2. lessonslearnedfromanexaminationofcasestudiesonYaleUniversity,Microsoft,Société

Générale,Delta,andQANTASAirlinesinthecontextofourpolicyframework

Thesecontributionssupporttheuseofthispolicyframeworkforcompanies,organizations,andpolicymakers.Wealsoprovideasupplementarytheoreticalframeworkandmodelforevaluatingacarbon-chargeprogramintheappendix.

Additionally,westatethatthesecondaryeffectsofpairedtaxesandinvestmentsubsidies,whenconsideredasasingleinstrument,couldprovecost-effectiveforinternalizingthetwomarketfailuresassociatedwithclimatechange:accountingforboththecarbonemissionsandthecleantechrevenues.

Furtherworkandthought,however,isnecessarytoproperlyframethisinsightinthecontextofcontemporaryeconomicliteratureonthissubject.

04


IntroductionInternalcarbonpricingallowscompaniestoassessthefinancialimplicationsoftheircarbonemissionsandencourageincreasedenergyefficiency.

CDP,formerlytheCarbonDisclosureProject,runsaglobalself-reporteddisclosuresystemforcompanies,cities,states,andregionstomeasuretheirenvironmentalimpacts.Partofthisdisclosureincludesquestionsregardingcarbonpricing.1

ArecentCDPreportoutlinesthreemajorbenefitsofinternalcorporatecarbonpricing:navigatingregulation,sourcingrequirements,andcarbonefficiency.2

1. Companiesthattracktheirgreenhousegasemissionsandimplementaninternalpriceoncarbonarebetterpreparedforaregulatoryfutureinwhichcarbonispriced.

2. Companiesthatsell,source,oroperateinternationallyareinevitablyexposedtocarbon-pricingstandards,giventheglobalpatchworkofexistingcarbon-emissionsregulations.Foranycompanythatintendstooperateglobally,itisadvantageoustostartcalculating,tracking,andpricingemissionstoeaseoperationacrossinternationalpricingpolicies.

3. Carbonpricingmotivatesinnovationandefficiencyimprovements,providesanewlensforcapital-investmentdecisions,andspurscarbon-efficienttechnologies.Carbonpricingmakesemissions-intensivebusinesspracticesmorecostly,nudgingcompaniestoavoidthem.Inadditiontothedirectbenefitsfromcarbonpricing,investorsarestartingtoprioritizecompaniesthatareleadersincorporatesustainability,includingcarbonpricing,andareincreasinglyinvestinginthem.3

MostofthecurrentactivityaroundinternalcarbonpricingoccursinEurope,Japan,Korea,Australia,andtheUnitedStates.Thisfigureindicatesthatresearchintothedesignofinternalcarbon-pricingprogramsiscurrentlyverygloballyrelevant.Itwillcontinuetobecomemorerelevantinthenearfuture.

Notallcarbon-pricingschemesarealike.Theimplementationofacarbon-pricingpolicyrequiresdecisionsaboutrevenueneutrality,informationprovision,incentiveandpricingstructures,andcarbonemissions.

Asoneofthefirstuniversitiestoimplementacarboncharge,Yalepilotedfourcarbon-pricingschemes,eachwiththeirownadvantagesanddisadvantages.Yale’sexperimentationwithcarbonpricingmotivatedthisresearchintothepolicytradeoffsassociatedwiththedesignofaninternalcarboncharge.

1 CDP(2018.)CDP: Disclosure, Insight, Action.RetrievedOctober31,2018fromhttps://www.cdp.net/en

2 CDP(n.d.)The Business Case for Carbon Pricing.RetrievedOctober31,2018fromhttps://b8f65cb373b1b7b15feb-

c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/comfy/cms/files/files/000/000/284/original/business-case-for-

carbon-pricing.pdf

3 “Socially-responsibleinvesting:Earnbetterreturnsfromgoodcompanies.”(2017).Forbes.Retrievedfromhttps://

www.forbes.com/sites/moneyshow/2017/08/16/socially-responsible-investing-earn-better-returns-from-good-

companies/#7f7f92df623d

05


Research Questions and MethodologyOurresearchquestionfortheprojectis:“How should organizations design and implement an internal carbon charge?”

WhileexistingtoolsfromOrganisationforEconomicCo-operationandDevelopment,WorldBankGroup,andothersgivepolicyguidanceforcarbonpricingatthenationallevel,fewresourcesaddresshowimplementationmightdifferforanorganization.4Ourprojectseekstosupplementthegrowingcarbon-pricingliterature.

Ourpolicyframeworkcaptureskeydecisionsandtradeoffsthatorganizationsmustmakeinthedesignandimplementationofaninternalcarbon-pricingprogram.WedevelopeddecisionpointsandanaccompanyingtradeoffframeworkforthemwiththeYaleCarbonCharge.Ourframeworkhighlightstheleversavailabletocompaniestodesigninternalcarbon-chargeprogramsrelevanttotheirspecificneeds.

Weexaminefourcasestudies–YaleUniversity,Microsoft,SociétéGénérale,andDeltaandQANTASAirlines–inthecontextofourpolicyframework.Weprovidesomelessonslearnedthatcanbeusefulasthispolicyframeworkisoperationalizedforcompanies,organizations,andpolicymakers.

Wealsoaimtotouchonancillaryquestionsthatmayariseinthedesignofaninstitutionalcarboncharge–includingwhatthegoalsoftheprogramshouldbe,whatscopeofemissionsshouldbeincluded,andwhatpriceshouldbecharged.

Policy FrameworkOurworkprovidesareliableplanningframeworkforactorsseekingtoinstituteaninternalcarboncharge.Forinternalcarbon-pricingprograms,apolicyframeworkpresentstheavailablequestionsandoptionsapolicymakerhastoconsiderbeforemakingcriticaldecisionsaboutthedesignandimplementationoftheprogram.

Wedesignedtheinternalcarbon-pricingpolicyframeworkasasetofquestionsorderedchronologically(asshowninFigure1).Thequestionshighlightvariousdecisionsorganizationshavetomake.Theyemphasizetradeoffsassociatedwitheachdecision.

4 OrganisationforEconomicCo-operationandDevelopment(OECD)andWorldBankGroup(WBG).(2015.) The FASTER

Principles for Successful Carbon Pricing: An Approach Based on Initial Experience.September2015.RetrievedOct.31,2018from

http://documents.worldbank.org/curated/en/2015/09/25060584/faster-principles-successful-carbon-pricing-approach-

based-initial-experience

06


07

SHOULD ORGANIZATIONS PRICE CARBON INTERNALLY? Climatechangeposesgreatchallengestobusinesses’activitiesandvalue.5Astheworldbecomesincreasinglyconcernedaboutimpactsfromclimatechange,companiesfacephysicalandregulatoryriskswhich,inturn,posefinancialrisks.

Physicalrisksarethemostevidentasweexperienceincreasesinfloodsanddroughts,changesinecosystems,andchangesintemperature.Organizationscanbedirectlyaffectedbydamagestobusinessassets,supplychains,andresourceandmaterialscarcity,allofwhichhaveadirectimpactontheireconomicandfinancialvalue.

5 “Internalcarbonpricing:Agrowingcorporatepractice.”(2016).I4CE&EPE.RetrievedOct.31,2018from

https://www.i4ce.org/download/internal-carbon-pricing-an-increasingly-widespread-corporate-practice/

Figure 1: Internal Carbon-Pricing Policy Framework

Monthly

Adoptcountry-specificSocialCostofCarbon

Earmarkedfor:energyefficiencyinvestment,offsetprograms,

stewardshipinitiatives,carbon-neutralspending

Fund Check Competition

Annually

Other

Developfirm-specificcarbonpricereflecting:abatementtarget,revenue

target,&benchmarkingtarget

Unrestricted

HOW WILL CARBON BE PRICED?

Onlyusedtoevaluateinvestmentopportunities

(shadowprice)

Appliedtoemissions(carboncharge)

Usedtoevaluateinvestmentopportunities

(shadowprices)andappliedtoemissions

(carboncharge)

Other

HOW MUCH WILL BE CHARGED?

HOW OFTEN IS THE CHARGE ASSESED?

IS THE MONEY RETURNED?

WHAT IS THE RETURN MECHANISM?

IS THE MONEY EARMARKED OR UNRESTRICTED?

AllReturned NotReturned


08

Forexample,manyfinancialinstitutionssuchasHSBC,MorganStanley,DeutscheBank,andBankofAmericahavereceivedpressuretoreleaseinformationrelatedtotheirclimate-relatedrisksandexposuresforfearofhavingstrandedassetsduetoclimatechange.6

Regulatoryrisks,however,arehighlyuncertain.Althoughsomecountrieshavetakenmeasurestoreduceorlimitgreenhousegasemissions,othercountriesarestilldebatingtheissue.Lawsandregulationsarealsosusceptibletochangewithnewelectioncycles,aswehavewitnessedrecentlyintheUnitedStates.

Risksandopportunities,inabroadsense,arekeyinputsfororganizationaldecision-making.

Thedecisiontoimposeaninternalcarbonpriceitselfpresentscompaniesandorganizationswithasetofexplicitcosts,includingthoserelatedtotheadministrationofaninternalcarboncharge.Italsopresentsasetofopportunities,includingcompetitiveadvantagesinalow-carbonfutureeconomy.

Aninternalpriceoncarbonwilldriveanorganization’splansandstrategiestowardslow-carbonpractices.Inordertobeeffective,theobjectivesofthepolicymustbeclearlydefinedandthepricemustbeproperlyset.Ideally,theobjectivewouldincludegreenhousegas-emissionmitigationandgreen-developmentpromotion.Itwouldalsoincluderevenuegenerationand/orincreasedefficiency.

Mitigatingpotentialimpactsfromclimatechangebyinstitutinginternalcarbon-pricingprogramsreducesorlimitsthoserisks.Inaddition,itcanpresentnewopportunitiesfororganizationstopotentiallyincreasetheireconomicvalue.

Majorbenefitsofinstitutinganinternalcarbonchargecaninclude:• Preparingorganizationsforfutureregulatorycarbontaxesandnewenvironmentallaws• Providingcompetitiveadvantagesinafuturelow-carboneconomy• Reducinggreenhousegasemissionswhenthepriceofcarbonissetproperly• Directinginvestmenttowardsefficientpracticesandtechnologies• Incentivizinglong-termresearchanddevelopmentopportunitiesfornewcost-effective

andgreeninnovations• Attractingenvironmentallyawareinvestorsandstakeholders7• Positioningorganizationsassociallyresponsible• Contributingtolong-termprofitsandreturnsbyleadinginenvironmentalandsocialissues8

6 “Biginvestorstakeaimatbanksoverclimatechangerisk.”(2017).Financial Times.RetrievedOct.31,2018from

https://www.ft.com/content/a2616a52-988b-11e7-a652-cde3f882dd7b

7 Eccles,R.G.,Serafeim,G.,&M.P.Krzus.(2011).“Marketinterestinnonfinancialinformation.” Journal of Applied Corporate

Finance.23.4,113-127.

8 Khan,M.,Serafeim,G.,&A.Yoon.(2016).“Corporatesustainability:Firstevidenceonmateriality.”The Accounting Review,

91.6,1697-1724


HOW WILL CARBON BE PRICED?Thetwoconventionalmethodsofinternalcarbonpricingarecarbonchargesandshadowprices.Bothoptionssetanexplicitpricepertonofcarbonemissions.However,theydifferintheimplementationofthisprice.

Aninternalcarbonchargeisataxappliedinternallyandvoluntarilypertonofcarbonemitted.Thechargereducesemissionsintheshorttermwhilealsoencouraginginnovationforlow-carbonandlow-energytechnologiesinthelongtermbyredesigningincentivestructures.Thecharge,inthiscase,iscollectedbytheresponsibleentityfromallparticipantswithinanorganization.

Ontheotherhand,ashadowpriceinternalizesthecostofcarbonwhenmakingchoicesaboutcapitalinvestmentandestimatingcoststhroughouttheinvestment’slifecycle.

Investmentsincludebutarenotlimitedtoresearchanddevelopment,infrastructure,equipment,andassets.

Ashadowpriceisatheoreticalvaluethatisassignedtoatargetedinvestmentbutisnotactuallycharged.Itusuallycorrespondstothelifecycleenvironmentalandfinancialcostsoftheprojectorequipment.

Thegoalofashadowpriceistoincorporatetheimpactofthecostofcarbonontheorganization’sstrategyandROI.Theshadowpriceaddresseslong-termstrategiesforfutureemissionsandinfluencesdecision-makerstoinvestinenergy-efficientinfrastructureandpractices.However,itdoesnotchangeoraddresscurrentemissions.

HOW MUCH WILL BE CHARGED?Anotherkeyconsiderationforanyinternalcarbon-pricingprogramisthepriceatwhichthecostofcarbonisset.Anextremelyhighchargecreateseconomicburdensforinternalbusinessunitswithinanorganizationandmakesitdifficultfortheprogramtobeapproved.

Ontheotherhand,averylowchargewillnothaveasgreatanimpactsinceitwouldbecheaperforbusinessunitstopaysuchachargethantochangetheiroperationsorreducetheirconsumption.

Thus,thechargeneedstobelowenoughtobeadoptedbythedecisionmakerwhilebeinghighenoughtomotivateemployeesandbusinessunitstochangetheirpractices.Ifthechargeisnotsethighenoughtomotivatematerialchanges,itsimplementationisneverthelessimportant:policydesignandimplementationarelargerhurdlesthanincreasingthepriceinthefuture.

Oneanswertothequestionof“Howmuchwillbecharged?”reliesonusingacountry-specificestimateofthesocialcostofcarbon(SCC).TheSCCiscalculatedusingvariousdiscountratesthatdependongovernmenteconomicpolicies.Itisconsideredtobethesocialcostatwhichorganizationsarepayingfortheenvironmentalimpactstheycause.

09

10 INTERNAL CARBON PRICINGPolicy Framework and Case Studies

Ifanorganizationinsteadelectstocalculateitsownprice,thecompanyshouldfirstdeterminecurrentand/orhistoricalemissionsandbuildagreenhousegasinventory.Next,itshoulddefineemissions-reductiontargets.Itshouldspecifyanimplementationforthetimelineforthecarbonchargeandassociatedemissionsreductions.Thecarbonpriceinagivenyearshouldreflectthegreenhousegasinventoryandincentivizebehavioralchangetoachievetheprogramtargetsandpolicygoals.

TheSCCisusuallyrevisitedandadjustedastheintegratedassessmentmodels(IAMs)usedareupdated.ThismoreaccuratelyestimatesfuturedamagesbasedonincreasedCO2concentrationsandresultingtrendchanges.

Thisiswhychargesprivatelysetbyorganizationsshouldberevisitedovertimetoaccountforrevisedtargets.Thiscanpreventtherealvalueofcarbonemissionsfromdeclining.Thiswillencouragetheorganizationtoreduceemissionsintheshorttermandincentivizeenergyefficiencyinvestmentsandinnovationsforthelongterm.

Shadowpricesandcarbonchargescanbeemployedsimultaneously.And,insomecases,thepriceusedforeachmethodmaydiffer.Anexampleofemployingbothacarbonchargeandshadowpriceforcarbonemissionsmightinvolveagraduatedcarbonchargeforfutureinvestments.Thischargewouldrepresentadifferentdiscountingschemeorriskanalysisthantheshadowpriceusedforcurrentinvestmentdecisions.

Theassumptionisthattheseinvestmentswillbecompletedwithinatimeframeinthefuturewherethecarbonpricesareexpectedtobehigher.

HOW OFTEN IS THE CHARGE ASSESSED?Oncethepriceoftheinternalcarbonchargeisset,thefrequencywithwhichthechargewillbeassessedandcollectedmustbedetermined.Thefrequencyofassessmentandcollectionwilldependoneachorganization’sstructure,activity,andindustry.

Theultimategoalistomaintainafrequencyatwhichtheincentivesforbehavioralchangestillapply.Ideally,organizationsshouldbeginwithapilotprogramtotestandassesstheresponsesandresultsofdifferentschemes.

Forexample,aninstitutioncouldcomparemonthlyandannualassessmentsofthechargeviaapilotprogram.

Pilotprogramsallowtoolsandguidelinesforfuturestrategiestobeevaluatedonasmallscale.Theinitialresultsfromsuchapilotwouldindicatethebestpracticesintermsofemissionsreductionandbehavioralchange.


IS THE MONEY RETURNED?Eachorganizationwillhavetodecidewhattodowiththefeeonceitiscollected.Thetwobasicoptionsintheframeworkaretoreturntherevenueorkeepit.

Organizationsmayalsochoosetoreturnonlyaportionoftherevenueandkeeptheremainingportion.Ultimately,thedecisionshouldalwaysincentivizecontinuedabatement.

Fromtheorganization’sperspective,theeasiestoptionintheshorttermistokeeptherevenue.Thiswillcuttheadministrativecostofdesigningamechanismforreturns.Itmaynot,however,achievethegoalofcontinuedabatementiftherevenueisusedincarbon-intensiveways.

Ontheotherhand,stockdividendsarefractionsofprofitspaidbacktoshareholders.Theyexistaspartofanincentivestructureforinvestments.Similarly,returndividendsfromcarbontaxesshouldbesetupasanincentiveforcarbonemissionabatement.

Therefore,thedecisionregardinghowrevenuewillbereturnedshouldbeevaluatedintermsofitspowertoincentivizeemissionsabatement.Dividendschemesaffordinstitutionsanadditionalleverbywhichtheycanreduceemissions.Mechanismsfordividendreturncanbeoptimizedwithineachinstitutiontorealizethehighestlevelsofabatement.

WHAT IS THE RETURN MECHANISM?Anylevelofreturn,whetherinfullorinpart,shouldbedesignedinawaythatbestinfluencesbehavioralchangeandencouragesemissionsreduction.Therearenumberofcontext-specificmechanismsthatanorganizationcanimplementtoachievethis.

Forexample,returnscouldbeawardedtothemostefficientbusinessunitswithintheorganizationasanincentive,introducingcompetitionbetweenbusinessunitsordepartments.

Duetofundamentaldifferencesbetweenbusinessunits,baselinesareoftenusedascomponentsofreturnmechanisms.Differentbaselinesmayprovidedifferentmarginalincentivesacrossbusinessunits.

Thedegreeofmemorylossbuiltintothebaseline–howmanyprioremissionsyearsareconsideredinitsdetermination–candeterminethismargin.

Butahypotheticalbaselinewithperfectmemory,whileitmaybemoreforgivingofpastemissionsspikes,makesthefee/dividendstructuremorevaried.Itincreasestheriskofahighfeebeingleviedafteraparticularlylow-emissionyear.


Indecidinghowtoconstructabaseline,organizationscanconsiderhowmanyyearsofpreviousemissionsshouldbeusedingeneratingthebaseline.Thebaselinecanbeanimportantmechanismtoleveltheplayingfieldforcarbon-intensivebusinessunitssothatincentivescorrespondtothemarginalcostsofabatement.

IS THE MONEY EARMARKED OR UNRESTRICTED?Thecollectedchargehastwomaineffectsonemissions:thebehavioraleffectandtheinvestmenteffect.Thebehavioraleffectistheshort-termimpactofthechargethatwouldencourageemployees,units,andthefirmtoreduceenergyconsumptionandabateemissions.

Incontrast,theinvestmenteffectisthelong-termimpact.Itispartiallydependentonthereturns.Whethertherevenuesarereturnedornot,theoptionsforthefirmanditsunitsineachcasearetohaveeitheranunrestrictedaccountoranearmarkedaccount.

Anunrestricted accountessentiallygrantsthedecisionmakerthefreedomtohandlerevenuefromthecarbon-pricingprogram.

TheGreenhouseGasProtocoldefinesScope1emissionsasdirectemissionsfromownedorcontrolledsources,Scope2emissionsasindirectemissionsfromthegenerationofpurchasedenergy,andScope3emissionsasallotherindirectemissionsnotincludedinScope2.SinceoftenonlyScope1andScope2emissionsareincludedinacarbon-chargeprogram,returningrevenueasunrestrictedcashmaybeanavenueforleakage,whichcausesissues.Whenthereisacashleakage,therevenuecollectedfromcarbon-emissionsreductionsisusedtopurchasetravelormaterialsthataremorecarbon-intensiveandareoutsideofthecarboncharge.

However,becauseunrestrictedfundsaremorevaluabletobusinessunitsthanrestrictedfunds,restrictioncanlowerthedollar-for-dollarincentivepowerofthereturn.

Earmarkedaccountsarededicatedtowardsfundsorefficiencyprojectsthatwouldguaranteeadditionalabatementandhelpbusinessunitsorfirmsadapt.Theseprojectsshouldbepre-evaluatedtoshowexpectedperformance.Thiswilldemonstratedemonstratehowsignificantlytheywouldhelpachievethedefinedtarget.

Case StudiesFourcasestudiesdemonstratethereal-worldapplicationpossibilitiesofourproject.Theyalsoallowustodrawsomelessonslearnedfromexistinginternalcarbon-chargeprograms.Theseinsightsmayofferusefulguidancetoothercompanieslookingatdesigningtheirownplans.


CASE STUDY 1: YALE UNIVERSITYIn2014,YaleUniversityPresidentPeterSaloveycreatedataskforcechairedbyProfessorWilliamNordhaustoexaminehowinternalcarbonpricingcouldbeappliedwithintheYalecontext.Thetaskforcerecommendedapilotstudy.9Itwasconductedinthe2015-2016academicyear,makingYaleUniversitythefirstuniversitytoexperimentwithinternalcarbonpricing.Withthepilotstudycomplete

9 YaleUniversity.(2015).ExecutiveSummary:Report to the President and Provost of Yale University: Findings and

Recommendations on a Carbon-Charge Program at Yale.RetrievedOct.31,2018,fromhttp://carbon.yale.edu/sites/default/

files/files/Carbon-charge-report-041015.pdf

CASE STUDY: YALE UNIVERSITY


Monthly




Fund Check Competition Other

Annually



Unrestricted

Other








(shadowprice)



(carboncharge)



andareportofpreliminaryresultsreleased,ProvostBenPolakisexpandingtheinitiativeacrosscampussoYalecanserveasalivinglaboratoryforcarbonpricing.10

Thepilotaimedtodeterminetheadministrativefeasibility,effectiveness,andpromiseofacarbonchargeappliedtoenergyconsumptioninYalebuildings.

CarbonChargemanagersassignedeachoftwentybuildingsrepresentingthediversityofYale’sbuildingstocktooneoffourtreatmentgroups,with280remainingcampusbuildingsservingasacontrolgroup.

Allfourtreatmentgroupsreceivedanewcustomreportsummarizingbuildingenergyconsumptionandcomparingittopastperformance.Onetreatmentgroupreceivedonlytheenergyreport.Threetreatmentgroupsweregivenadditionalincentive-basedcarbon-pricingschemes.

Thefourtreatment-pricingschemesarecharacterizedasfollows.Eachofthemwasusedforfivebusinessunits,respectively.• Information only:Buildingsreceivedamonthlyreportwithinformationonenergyuseand

indicativecarboncharges,butwithoutanyfinancialconsequences.• Target:Buildingsweregivenareductiontarget1percentbelowtheirbaseline.Theypaidfor

emissionsabovethisvalueandreceivedfundsforemissionslevelsbelowit.• Redistributive:Companiesusedarevenue-neutralschemeinwhichbuildingswerecomparedto

thegroup’soverallpercentchangeinemissionsfromabaseline.Thebuildingsincurredchargesorreceivedrebatesbasedonperformanceaboveorbelowthebaseline.

• Investment:Buildingsweregivenfundsearmarkedonlyforenergy-conservationinvestments.

YaleusesaSCCof$40/MTCDEforitscarboncharge.ThisisbasedonUnitedStatesfederalgovernmentestimatescompletedundertheObamaadministration.11

Whencompletingthepilot,theYaleCarbonChargediscoveredfivekeytakeawaysfordesigninganinternalcarbon-pricingprograminauniversitysetting.Theselessonslearnedare:1. Internalcarbonpricinghaspotentialforuniversitycampuses.2. Carbonpricingschemedesignisimportant,butmanyvariationscanworkwithinsimilarcontexts.3. Aneffectivecarbon-pricing-schemeconveysclearinformationandincentives.4. Resultingemissionsreductionscanbecost-effective.5. Carbonpricingcanbenefitgreatlyfromexperimentationandcollaboration.

10 YaleUniversity.(2016).YaleUniversity’sCarbon Charge: Preliminary Results from Learning by Doing.RetrievedOct.31,2018,

from:http://carbon.yale.edu/sites/default/files/files/Carbon_Charge_Pilot_Report_20161010.pdf

11 UnitedStatesEnvironmentalProtectionAgency.(n.d.).Retrievedfrom

https://www3.epa.gov/climatechange/Downloads/EPAactivities/social-cost-carbon.pdf


Usingthelessonslearnedfromthepilot,Yaleisincorporatingthecarbonchargeintoorganizationalbudgetsfor264outoftheover400campusbuildingsstartinginfiscalyear2018.Thesebuildings,combined,accountforover70percentofYale’scarbonemissions.

Administratorsandoperationsstaffwillreceiveamonthlybuilding-energyreportandwillberesponsiblefornetcarbon-chargepaymentsandreturnsattheendofthefiscalyear.Inadditiontoimplementation,theYaleCarbonChargewillcontinuetoprioritizeresearch.Italsowillusecampusassetsforexperientiallearning.


Monthly





Annually



Unrestricted

Other


HOW OFTEN

IS THE CHARGE

ASSESED?





(shadowprice)



(carboncharge)


CASE STUDY: MICROSOFT



CASE STUDY 2: MICROSOFTImplementedin2013,theinternalcarbon-pricingschemeusedbyMicrosoftisaninnovativequantity-basedapproach.InsteadofpricingcarbonattheSCC,Microsoftdeterminesitscurrentlevelofemissionsandthencalculatestherequiredinternalcarbonpricetomakeitsoperationscarbon-neutral.However,structuralproblemsareholdingbacktheprogram.

Microsoftreliesontwocoreformulaeinitsapproach:

Cost of environmental initiatives portfolio ($) = Cost of internal initiatives ($) + Cost of green power purchases ($) + Cost of carbon offsets ($)

Internal carbon price (per mtCO2e) = Cost of environmental initiatives portfolio ($; from above)/Total emissions (mtCO2e)

TheemphasisofMicrosoft’sprogramisonhowtaxrevenuesarespentratherthanhowmuchthecarbonpriceisorhowrevenueiscollectedinternally.

Intermsofourtheoreticalframework,thismeansMicrosoftfocusesonthesecondarybenefitsofacarbontax.Ittakesthisapproachratherthanevaluatingtheemissionsreductionsofindividualbusinesssubunits.

Thisprogramisinnovative.Itwouldstillreapthedoubleeffectofemissionsreductionsifthecarbonpriceissufficientlyhigh.Becausethepriceofcarbonisdeterminedbythetotalcostofthecarbon-feefundinvestmentstrategy,itcanchangefromyeartoyear,althoughMicrosofthasthusfarkeptitsinternalcarbonpricerelativelyconstant.

Unfortunately,Microsoft’scurrentinternalcarbonprice,whilenotreleasedinofficialreports,hasbeenmentionedtobebetween$4-5USD.12

Hence,weexpectminimalreductionsinenergyconsumptionandcarbonemissionsinternally.Microsoft’sapproachtocarbonneutralityistosimplybuyupcarboncreditsandreducecarbonemissionselsewherewhereitischeapertodoso.

Thus,whileMicrosofthasoftenbeenlaudedasaleadingexampleofinternalcarbonpricing,thecompanymaynotbethebestexampletofollow.

12Pickett,C.Personalcommunication.


CASE STUDY 3: SOCIÉTÉ GÉNÉRALESociétéGénéraleBankGrouphasbeenproactiveandcommittedtoreducingitscarbonemissionsformanyyears.Since2005,SociétéGénéralehasperformedagreenhousegasinventoryfollowingtheGHGProtocol.13Thedatacollectedforthisinventoryisusedasthebasisforcalculatingthebank’sinternalcarbontax,whichispricedat€10/tCO2($10.8/tCO2).SociétéGénéralewasoneofthefirstbanksintheworldtointroduceaninternalcarbontaxin2011.

13GHGProtocolisaninternationalstandardthatcovershowtomeasure,manage,andreportgreenhousegasemissions.Itwas

developedbytheWorldBank.

TEXT WRAP

CASE STUDY: SOCIÉTÉ GÉNÉRALE


Monthly





Annually



Unrestricted

Other







(shadowprice)



(carboncharge)




ThebankdevelopedaCarbonReductionProgram(CRP)basedonthistaxtoachieveitsemissionsreductiontargets.Themechanisminvolveseachentity,definedaseitheracorebusinessorcorporatedivision,payinganinternalcarbontaxaccordingtoitsrespectivecarbonfootprint.ThebusinessentitiesofSociétéGénéraleBankareresponsibleforsettingtheirownactionplanguidedbythebank’semissionstargetandincentivizedbytheinternalcarbontax.

TherevenuefromthetaxisthenallocatedtointernalenvironmentalefficiencyinitiativesviaCRPEnvironmentalEfficiencyAwards.Thecompetitionforawardsprovidesadditionalmotivationandincentiveinternally.Eachawardcancoverupto100%ofimplementationcostswithamaximumlimitof200,000($182,000)perinitiative.

TheprogramisdesignedtoincentivizeeachbusinessentitytoreduceCO2emissionstolessentheamountoftaxleviedandtoimplementenergyefficiencyinitiativeswithanefficiencyaward.

Thisideallycancreateavirtuouscycleofefficiencyupgradesandemissionsreductions.Gradually,thegroupcantransitionfromenergy-intensiveproductsandservicesandbecomeenergyefficientthroughthisprogram.Oneoftheadditionalgoalsofthisprogramistopromoteawarenessinshowcasingenvironmentalefficiencyinitiativesasopportunitiesforinnovation.

Theresultofthe2012-2015CRP,whichusedapriceof$10.8/tCO2,wasan11.4%reductioninGHGemissionsperoccupantcomparedto2012.Thisperformanceexceededtheinitialtargetof11%.Theprogramalsoreducedenergyconsumptionby11.3%comparedto2012.14

In2015alone,56initiativeswonawardsworthatotalof€3.4M($3M).Overthethree-yearperiod,119winninginitiativesyieldedannualsavingsofanaverageof€13M($11.8M)onoverhead.Thiswasanaverageof4,700tCO2/yearinemissionsreduction.Italsoresultedinanaverageof30GWhofenergysavings.15

Theseinitiativesinvolvedprojectstargetingbuiltinfrastructure,informationtechnology,paperuse,andtransportinnovation.

Recently,thebanksetupanewandmoreambitiousCRPwhichaimstoreduceemissionsperoccupantby20%comparedto2014levelsby2020.16

14 SOCIÉTÉGÉNÉRALE.(2016).Corporate and Social Responsibility Report.

15 Ibid.

16 “Internalcarbonpricing:Agrowingcorporatepractice.”(2016).I4CE & EPE.RetrievedOct.31,2018fromhttps://www.i4ce.

org/download/internal-carbon-pricing-an-increasingly-widespread-corporate-practice/


STUDY 4: DELTA AND QANTAS AIRLINESTheairlineindustryisresponsiblefor2%ofglobalannualemissions,emittingalargershareofglobalcarbondioxidethanmanycountries.17

17 Lampert,A.(2016).“U.N.setslimitsonglobalairlineemissionsamiddissent.”Reuters.RetrievedOct.31,2018from

https://www.reuters.com/article/us-climatechange-aviation/u-n-aviation-committee-approves-airline-climate-deal-

idUSKCN1261QR

*Not disclosed or publically available

*Not disclosed or publicly available


Monthly





Annually



Unrestricted

Other


HOW OFTEN IS THE CHARGE ASSESED?*

IS THE MONEY RETURNED?*

WHAT IS THE RETURN MECHANISM?*

IS THE MONEY EARMARKED OR UNRESTRICTED?*


(shadowprice)



(carboncharge)


CASE STUDY: DELTA AND QANTAS AIRLINES



Iftheairlineindustrywasacountry,itwouldbethe21stmosteconomicallyproductivenationandthe6thlargestemittingnationintheworld.18, 19

However,theairlineindustrywasleftoutofthe2015UnitedNationsclimatechangeconferenceinParis,despiteitscarbonintensity.CurbingairlineemissionswasinsteadlefttotheInternationalCivilAviationOrganization(ICAO)andindividualcountries.

In2012,theEuropeanUnionEmissionsTradingSystem(EUETS)requiredallairlinesoperatinginEuropetoreportcarbondioxideemissionsandpurchasecomplianceoffsetsiftheyexceedtheirtradeableallowances.AsimilarprogramwasestablishedundertheAustralianEmissionsTradingSystem(AUETS).

TheInternationalCivilAviationOrganization(ICAO),seekingtoharmonizeregionalpoliciesforemissionsreductionandmitigatetheglobalclimatedamagesattributabletotheaviationindustry,establishedaglobalmarket-basedmeasure(MBM)tocontrolfuturecarbondioxideemissionsfromaviation.

DeltaandQANTASairlineshavereportedtheuseofaninternalcarbon-pricingscheme.Whilebothairlinesarecommittedtousinginternalcarbonpricing,neitheristransparentaboutitsapplicationorlevel.

Instead,aninternalcarbon-pricingmechanismseemstobevoluntarilyappliedeitherasadirectpass-throughofcarbon-pricingregimesestablishediwnvariousjurisdictionstotheairlines’applicablebusinessunitsorinanticipationoffuturecarbonpricingoremissionsregulations.Formanycompaniesintheindustry,theaimofcarbonpricingnowistopreparethemselvesforfutureenvironmentallegislation.

Forthcomingregulationsareanticipatedtobeintroducedtohelptheindustrymeettheambitioustargetsetoutinthe2016ICAOGeneralAssembly:tomakeallaviationgrowthafter2020carbon-neutral.

Implementationofpoliciestomeetthisgoalwillincludeavoluntarypilotphasefrom2021to2026andthenamandatorysecondphasefrom2027to2035forcountrieswitha2018revenuetonne-kilometreofover0.5%.20Policiesemployedinthepilotprogramwilleitherinvolveglobalemissionstrading,globalmandatoryoffsetting,orglobalmandatoryoffsettingwithrevenue.

DeltaandQANTAS,thethirdandthirteenthlargestvoluntarycarbonoffsetbuyersglobally,alongwith

18 AirTransportActionGroup.(2018). Facts and Figures.Retrievedfromhttp://www.atag.org/facts-and-figures.html

19 UnionofConcernedScientists.(2018).EachCountry’sShareofCO2Emissions.RetrievedOct.31,2018from

http://www.ucsusa.org/global_warming/science_and_impacts/science/each-countrys-share-of-co2.html#.WQ4AoOUrKUk

20 Bisset,M.(2017).“Aviationemissions–Theschemeagreedatthe2016ICAOGeneralAssembly.” Clyde & Co.RetrievedOct.31,

2018fromhttp://www.mondaq.com/x/577730/Aviation/Aviation+Emissions+The+Scheme+Agreed+At+The+2016+ICAO

+General+Assembly


nineotherairlines,currentlyoffsetcarbonemissionsinanticipationofindustry-wideregulationfromtheInternationalCivilAviationOrganization(ICAO)andincompliancewiththeEUETSandAUETSrequirements.

Deltaalsousesashadowpriceofcarbontoevaluatefutureroutes,projectschedules,andinvestmentopportunities.Thisisalsobeingdoneinanticipationofcompliancerequirementsforregionalorglobalairlineoperation.

QANTASimposedanAustraliancarbontax-linkedsurchargeonfares–butitremovedthisaheadoftherepealofthecarbontax.AnewsarticlefromAustraliareportedthatastaffersaid,“Ourall-inclusivefareshavenotrisen,thoughwehavekeptasmallcarbonsurchargeondomesticfaressothatwecankeeptrackinternallyofthecostofthetax...Thishasnowbeenremoved,buttherewon’tbeanychangetothepricesthatcustomerspay.”21

Inthatway,thecarbonchargeappliedtoair-travelbyQANTASwasadirectpass-throughofacarbontaxtoconsumers.TheremovalofthesurchargedidnotseeareductioninfaresduetoincreasingmarketcompetitionontheAustraliandomesticaviationmarket.

Lessons Learned from These Case StudiesThesedifferentcasestudiesshedseveralbroadlessonslearnedthatmaybeusefulascompaniesdesignandimplementtheirowninternalcarbon-pricingschemes.

First,theYaleUniversitycasestudyshowsthatcarbon-pricing-scheme design is important, but many different variations can work within similar contexts.

Intestingfourdifferentcarbon-pricingschemes,YaleUniversity’spilotfoundthatallbusinessunitsthatparticipatedinanypricingschemeduringthepilotsignificantlyreducedtheircarbonemissionsrelativetothebusinessunitsthatdidnotparticipateinthepilot.

Specifically,the“investment”pricingscheme,inwhichbuildingsweregivenfundsearmarkedforenergy-conservationinvestments,experiencedthegreatestreductioninemissions.However,duetothesmallsamplesizeofthepilot,theexplanatorypowerofthesefindingsislimited.

Theairline-industrycasestudyclearlydemonstratesthefirstbenefitofaninternalcarbon-pricingschemeoutlinedbyCDP.DeltaandQANTASemploycarbon-pricingstrategiesasa form of regulatory preparedness or advanced/anticipated compliance.

21 News.com.au.(2014).“Quantasscrapscarbontaxsurcharge.”RetrievedOct.31,2018,fromhttp://www.news.com.au/

finance/money/costs/qantas-scraps-carbon-tax-surcharge/news-story/aad2d2b4c7a7256a3b5e6143b7c16ad6


Inasimilarvein,SociétéGénérale’sdecisiontoimplementacarbonchargewasinpreparationfortheupcomingEmissionsTradingSystem(ETU)intheEuropeanUnion.

Microsoft,anothermultinationalcompany,canalsobeconsideredtobereapingthebenefits of moni-toring and evaluation of carbon emissions as a means of navigating various global standards, commit-ments, and challenges.

Thesetwocasestudiesalsoshedotherinsights.SociétéGénéralebenefitedsignificantlyfromitsearlyperformanceofaGHGinventoryin2005tosetaneffectiveinternalcarboncharge.Thissuggeststhatdesign elements from its program could be used effectively for other internal carbon-pricing schemes.

Inadditiontothecharge,competition between unitsencouragedtheemployeestoengageandbecreativetoproposevariousinternalenvironmentalefficiencyinitiatives.TheinitialCRPinthegroupachievedthedefinedemission-reductionandenergy-consumptiontargets.Itresultedinannualsavingsof$11.8million.

TheMicrosoftcasestudyshowsusthatwhilefocusingontheusesofrevenueforaninternalcarbonchargeisaninnovativeapproachincarbonpricing,the carbon price must be sufficiently high to reap the double reduction in emissions,ashighlightedbyourtheoreticalmodel.

Whileoftencitedastheleadingexampleforinternalcarbon-pricingschemes,Microsoft’sprogrammaynotbethebestmodelforcompaniesseekingsignificantreductionincarbonemissions.

ConclusionAswesurpass400ppmatmosphericcarbondioxide,theresponsibilitiesforcarbon-emissionsreductionandmitigationfalltogovernmentsatalllevelsaswellastheprivatesector.Whilethereareresourcesforpriceinstrumentstoaddressdamagesfromcarbonemissionsatthenationallevel,therearelimitedresourcesavailabletocompaniesandotherinstitutions.

Ourpolicyframeworkcaptureskeydecisionsandtradeoffsthatorganizationswillfaceinthedesignandimplementationofaninternalcarbon-pricingprogram,highlightingtheleversavailableforcompaniestodesignaninternalcarbon-chargeprogramthatmeetstheirneeds.

Wefindthatcurrentimplementationofinternalcarbon-pricingschemesbycompaniesgenerallyserveaspreparationforcertainoranticipatedfutureregulations.

Lesscommon,butstillrelevant,arepositivereturnsfromrevenue-neutralinternalcarbon-chargeprogramsliketheYaleCarbonCharge.Newincentivesforinvestingincarbon-efficiencytechnologycanpotentiallyaddressthebehavioralfailuresthatleadtounderinvestment.


Appendix: Theoretical FrameworkWepositthatthesecondarymacroeconomiceffectsofpairedtaxesandinvestmentsubsidies,whenconsideredasasingleinstrument,couldprovecost-effectiveforinternalizingthetwomarketfailuresassociatedwithclimatechange:theclimateemergencyandthetechnologytransition.22

Thepolicyframeworkprovidesdifferentdecisionpointsandtradeoffsthatcompaniesface.Outcomevariables,intandemwiththepolicyframework,wouldhelpcompaniessettargetsfortheirinternalcarbon-pricingschemesandaligntheirtargetswiththepolicydecisionstheymake.

Therehasbeenmuchdebatearoundwhetheranationalcarbontaxprovidessecondarybenefitsapartfromareductionincarbonemissions.

Goulderfirstoutlinedthepossibilityofadoubledividendinwhichreturningcarbontaxrevenuesbyloweringotherdistortionarytaxesintheeconomywouldincreasenon-environmentalwell-being.Thiswouldbeindependentofanyenvironmentalbenefitsofthetax.23

Sincethen,others,includingGoulder,ParryandOates,demonstratethetax-interactioneffect,whereacarbontaxisseenaseffectivelyataxonafactorofproductionandhenceincreasesexistingtaxdistortionsintheeconomy.24, 25

Thesedebateshavesometimesoccurredinthecontextofcomparingdifferentpolicyinstrumentsforclimatechange,suchasthetaxversuscap-and-tradedebate.26Recentworkhassuggestedthatwhetherthedoubledividendortaxinteractiondominatesdependsonthespecificcircumstancesthatunderliethesituationinwhichthecarbontaxisimplemented.27

Littleattentionhasbeenpaidtotheeffectsofusingcarbon-taxrevenuesforpoliciesthataddressotherenvironmentalmarketfailures.Examplesincludesubsidiesforthecleantechrevenuesrelatedtoenergy-efficiencyinvestmentsandtheunderinvestmentinR&Dforgreentechnologiessuchas

22 Jaffe,A.B.,Newell,R.G.,&Stavins,R.N.(2005).Ataleoftwomarketfailures:Technologyandenvironmentalpolicy.

Ecological Economics,54(2),164-174.

23 Goulder,L.H.(1995).Environmentaltaxationandthedoubledividend:areader’sguide.International tax and public finance,

2(2),157-183.

24 Goulder,L.H.(1998).Environmentalpolicymakinginasecond-bestsetting.Journal of Applied Economics,1(2),279-328.

25 Parry,I.W.,&Oates,W.E.(2000).Policyanalysisinthepresenceofdistortingtaxes.Journal of policy Analysis and

Management,603-613.

26 Goulder,L.H.,&Schein,A.R.(2013).Carbontaxesversuscapandtrade:acriticalreview.Climate Change Economics,4(03),

1350010.

27 Goulder,L.H.(2013).Climatechangepoliciesinteractionswiththetaxsystem.Energy Economics,40,S3-S11.


improvedPVcells.28Thereisanintertemporalfeedbackofsuchpoliciesonthequantityofenergyconsumedortheamountofemissionsperenergyconsumedrespectively.

Thus,itmightbeinsightfultoexaminetheinterdependenceofthecarbontaxandthesubsequentpolicyimplemented,ratherthantreatthemastwoseparatepolicyinstruments.Kolstadacknowledgesthelinkbetweenthesetwomarketfailures,butintermsofincentivesforinducedinnovationratherthanthroughpotentialusesofcarbon-taxrevenuestosubsidizeinnovation.28Figure2belowillustratesourcoretheoreticalidea.

Thegraphontheleftistheclassictheoreticaldiagramfornegativeexternalities.Ideally,governmentsorcompaniesshouldsetacarbontaxequaltothemarginalexternalcostsofenergyconsumption.Thiswouldforceconsumersorbusinessunitstointernalizealltheexternalcostsassociatedwithenergyconsumption.

Assumingthisidealscenario,thequantityofenergyconsumedwoulddecreasefromQ0toQ*andthetaxrevenuecollectedwouldbeequaltothebluebox.

28 Kolstad,C.D.(2010).Regulatory choice with pollution and innovation (No.w16303).NationalBureauofEconomicResearch.

Figure 2: Using carbon tax revenues to address the appropriability market failure for cleantech revenues

P0

Q0 Q0

P0E0

E2E1P*P*

Q* Q*

E0

MPC

MSC=MPC+MEC

Dd=MSB=MPB

Price/Cost/Benefit ($) Price/Cost/Benefit ($)

Quantity of energy consumed Quantity of investments in energy efficiency

MSC=MPC

MSB=MPB+MEB

AMPB

ENVIRONMENTAL EXTERNALITIES APPROPRIABILITY


Giventhatthereisanotherexternality,apositiveexternalityintermsofrevenuesfromenergyefficiencyorcleantechdevelopment,theserevenuesmaybeusedassubsidies.Shouldtheamountcorrespondperfectly,thesubsidieswouldallowconsumersorbusinessunitstointernalizetheexternalbenefitsofenergyefficiencyinvestments.ThiscausesanincreaseinenergyefficiencyinvestmentsfromQ0toQ*.Theseinvestmentslowerthequantityofenergyconsumedinfuturetimeperiods,resultinginfurthercarbon-emissionreductions.

Thus,usingcarbon-taxrevenuestosubsidizeotherexternalitiessuchascleantech-developmentrevenuewouldprovideadditionalenvironmentalandsocialbenefitsthatmayormaynotbegreaterthanthebenefitsofreducingotherdistortionarytaxes.

However,therehasyettobeacomparisonoftheeffectivenessofdifferentusesofcarbontaxrevenuesinthecontextofoptimaltaxtheorythatwouldgobeyondreducingotherdistortionarytaxesorreturningtherevenues’lumpsums.

Goulderexaminedwhethercarbontaxesareamoreefficientrevenue-raisingmechanismforgovernmentsascomparedtootherrevenuesourcesandsimplyconcludedthattheenvironmentalgainfromgreentaxesisessentialforgreentaxestobelesscostlythanotherformsofgeneraltaxes.29

Wethinkthatacomparisonofdifferentusesofcarbontaxrevenuescanprovidenewperspectivestothedebateondouble-dividend-versus-taxinteraction—aswellas,perhaps,acarbon-tax-versus-cap-and-tradeevaluation.

Whencompaniessetinternalcarbon-pricingschemes,theydonotfacethemacroeconomiceffectsofrevenuerecyclingortaxinteractionasdiscussedinthecurrentacademicliterature,sotheuseofcarbontaxrevenuesforotherpoliciesbecomeacentralconsideration.

Inparticular,companiescanchoosetoearmarktheserevenuesforgreeninvestmentswithinthecompanyorexternally.Ortheycanreturnthemtoindividualbusinessunitsordepartmentsearmarkedsuchthattheunitsthemselvesengageinthesegreeninvestments.

29 Goulder,L.H.(2013).Climatechangepoliciesinteractionswiththetaxsystem.Energy Economics,40,S3-S11.

internal carbon pricing - cbey.yale.edu carbon... · carbon-pricing literature. our policy...

Documents