Upstream, Downstream: Why a Campus-Based Carbon Tax Is a Bad Idea

Severin Borenstein is against fossil fuel divestment but says universities could move ahead by instituting a campus-level carbon tax.  This would create incentives to lower carbon footprints, he says, while also being educational in itself.  He’s particularly enamored of the way a tax would force climate activists to actually pay, rather than relying on the cheap talk of political advocacy.

I won’t explore the psychological underpinnings of the you-have-to-earn-your-activism-by-paying-a-personal-price thing, but on purely economic grounds I’m surprised that Borenstein didn’t pick up on the extreme inefficiency of such a downstream mechanism.

First a word of explanation: a policy like a carbon cap or tax can be instituted at any level, from the world as a whole down to your own home.  You can tax carbon emissions across an entire economy at so many dollars per ton, or you could tax your own household the same way.   The national or international level is what we call upstream, your home is downstream.  A campus is in between, but in terms of scale much closer to a household than a 300+ million citizen country.

Why does it matter?  In one word, substitution.  The more upstream a tax or cap is instituted, the more opportunities there are for substituting one good or production method for another.  If you tax your household, you can change your own personal consumption, but you can’t change the carbon content of the consumption options themselves.  For instance, where I live there is no effective mass transit between my town and the big metropolises to the north and south (Seattle and Portland).  The only way I can reduce the travel portion of my carbon footprint is to not go there.  But if the choice is posed at a higher level, like the country or at least the Pacific northwest, we can set up better transit services, so I can have the option of getting out of my car and onto a train.

As you can imagine, the upstream-downstream question for climate policy is huge.  Upstream is politically harder—you have to get more people on board—but economically much, much better.

So you have to wonder why Borenstein would think that a very downstream tax, like that on a single college campus, is a good idea.  Yes, everyone would be forced to make choices, but the choices open to them are a small and inefficient subset of those our society actually confronts.  A campus carbon tax would be a powerful source of miseducation.