From the Community | The price we must all pay: carbon pricing

April 20, 2021, 9:32 p.m.

“Among the most urgent issues of our time are climate change and the challenge of creating a sustainable future for people and our planet,” affirmed Stanford President Marc Tessier-Lavigne as he announced the new School of Sustainability in May 2020. 

Overwhelming evidence has shown the accelerating impacts of climate change. In the past year, we have experienced more frequent and more extreme weather events than ever, such as the record-breaking 4.2 million acres burned in Californian wildfires and the devastating electricity blackouts in Texas. In response to the growing threats of climate change, Stanford students and faculty have demonstrated a willingness to take action. Various initiatives include the Fossil Free divestment movement, Faculty Senate resolution on climate change and, more recently, a carbon pricing petition and resolution

At the federal level, the consciousness of climate change has sparked conversations for a comprehensive plan. The Biden administration currently favors infrastructure investments and renewable energy standards in order to reallocate jobs and reach net-zero emissions by 2050. However, a key piece of the solution to the climate puzzle is missing: carbon pricing. 

Among the many approaches to curbing CO2 emissions, carbon pricing is a market-based mechanism that internalizes the social cost of carbon and reduces emissions. Carbon pricing is a cost-effective policy favored by economists. In economic terms, CO2 emissions are an externality that imposes a cost on society in the form of climate change. In order to internalize the market failure, economists have urged the need for a national carbon price through a carbon tax or cap-and-trade system. A carbon tax imposes a fee on each ton of CO2 emitted on fossil fuel plants, while a cap-and-trade system sets an emissions cap and grants pollution permits for firms to trade. 

Both nationally and locally, carbon pricing can be implemented to reduce emissions in addition to other decarbonization measures. With the potential to advance Stanford’s mission, we call upon Stanford’s administration to make a public statement on the urgency of stronger climate policy, sign this letter in support of carbon pricing and crystalize its carbon neutrality commitments by implementing a system on campus. Beyond its own borders, the University should not be afraid to utilize its platform and voice to induce change by endorsing carbon pricing.

Within Stanford’s campus, the University is conscientious of its carbon footprint and has taken strides to promote sustainability. Along with over 300 higher education institutions, President Lavigne and Provost Drell pledged to transition to a low-carbon campus and signed onto the American Campuses Act on Climate Pledge in 2015. The administration has centered sustainability through energy-efficient buildings, ambitious net-zero emission and waste goals, and various committees dedicated to environmental issues. However, Stanford has yet to address or even quantify its Scope 3 emissions (i.e. emissions associated with goods, materials, transportation, waste disposal and supply chains). An example would be the lifecycle carbon emissions from the purchase of a Stanford hoodie. Scope 3 emissions are much easier to quantify and mitigate using carbon pricing rather than efficiency regulations. Consequently, carbon pricing remains an essential part of an effective University-level carbon neutrality mission. 

A price on carbon is an efficient and popular mechanism despite its simplicity. The International Monetary Fund has called it “the single most powerful and efficient tool” to combat climate change, and a joint paper by the Environmental Defense Fund and International Emissions Trading Association describe it as a key ingredient to meet the Paris Accord’s targets. For example, a fee that starts at $15 a ton and rises $10 each year would slash emissions by 40% by 2030. Throughout the years, bipartisan support for carbon pricing has grown steadily. Around the world, 64 national and subnational carbon pricing policies have been implemented and cover roughly 1/5 of CO2 emissions. Over 400 university student government presidents and 3,500 economists have supported carbon dividends. In a University of Chicago poll, 80% of top economists agreed on the need for carbon pricing policies. Even the American Petroleum Institute has recently endorsed carbon pricing. 

Carbon pricing is not a silver bullet, and critics point to many implementation pitfalls. A small, limited carbon price that does not increase sufficiently quickly will not significantly curb emissions or alter the investment landscape. Conversely, a large carbon price without simultaneous stimulus payments will stress poorer households, who spend a greater portion of their income on gas and electricity, and exacerbate existing inequities. Environmental justice advocates allege that cap-and-trade systems worsen environmental quality, while others claim that a carbon price is less effective at reducing emissions compared to renewable energy standards, regulation, and legal action. Practically, political feasibility is another major hurdle to implementing a carbon price at a national level. 

Despite the concerns, research has shown that market-based emissions policies have not exacerbated environmental inequality. Econometric analysis has demonstrated that California’s cap-and-trade program decreased pollution exposure of air pollutants in marginalized communities compared to no policy. Moreover, carbon pricing supporters have defended that the equity of the policy depends heavily on the reallocation of revenue and suggested a variety of solutions. A popular proposal calls for monthly carbon dividends: recurring cash payments to households on a per capita basis to offset increased energy costs. George Shultz was an outspoken leader for a revenue-neutral tax that redistributes revenue into the pockets of Americans. A study conducted in 2020 found that the bottom 70% of households would either break even or end up with more money than before with carbon dividends. The proposal carries a unique appeal during the COVID-19 pandemic, which has exposed the incredible popularity of stimulus payments among the American public. Others have suggested that the revenues be used to cut other regressive taxes or channeled into projects that benefit communities most vulnerable to climate change. Regardless, gaps in environmental quality remain, and environmental justice (EJ) should be a critical point in policy discussions. 

Moreover, most advocates acknowledge that a price should be paired with other decarbonization strategies, such as federal funding for clean energy R&D. A high price on carbon will also be more effective if it is well-enforced, in order to prevent fossil fuel companies from finding loopholes through tax breaks and legal immunity. No policy is perfect, but carbon pricing can be pursued in addition to other policy approaches. 

By experimenting with carbon pricing on Stanford’s campus, students and faculty can advance research to address previously mentioned concerns and inform broader policy decisions. Although we recognize that Stanford’s administration has already taken immense steps towards net-zero emissions, the University should be unafraid to publicly support carbon pricing and potentially implement its own carbon price. For many years, Professor Frank Wolak has pushed the University to go one step further by introducing an on-campus carbon pricing system. His proposal invests in real-time electricity consumption monitoring systems for residential halls, takes inventory of Stanford’s emissions to incentivize individuals to reduce energy consumption and creates a seminar for students to study the campus pricing system.

Peer universities including Yale have taken the lead, becoming the first university to successfully pilot a carbon charge program and the first academic member to join the Carbon Pricing Leadership Coalition. Since its initial implementation in 2016, Yale’s pilot produced an average 7.4% reduction in tCO2 emitted for each of the 25 participating administrative units. Yale’s system was revenue-neutral by setting a 1% reduction target for each building, then charging and rebating the buildings at a carbon price of $40/tCO2. A similar pilot at Stanford would enhance the University’s commitment to carbon neutrality, contribute to academic research on carbon pricing and reinforce Stanford’s dedication to sustainability.  

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Devin Gupta is a high schooler writing as part of The Daily's Summer Journalism Workshop.

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