An Economic Perspective on a Carbon Management Program at the University of Michigan

Abstract

The recent UN IPCC special report stated that, in order to stay at or below 1.5 degrees of warming, greenhouse gas emissions will need to be reduced by 45 percent below 2010 levels in the next decade, and reach net zero emissions by 2050. These are much steeper cuts than previously estimated and as such, will require immediate collective action considering that global emissions are still rising. In February 2019, the University of Michigan announced the formation of the UM President’s Commission on Carbon Neutrality charged with charting a course to net zero carbon emissions. This report focuses on evaluating the marginal cost and abatement potential of different options available to the university, such as a renewable energy power purchase agreement, the Central Power Plant upgrade, and commoditized emissions reductions like cap-and-trade permits and carbon offsets. Additionally, we examine the feasibility of instituting a carbon tax on campus by performing a simulation on selected schools to illustrate how different tax levels and rebate schemes would affect each schools’ budget. Recommendations: ● Begin Piloting a Carbon Tax: Piloting will be a necessary step ahead of implementing a tax university-wide. Given the time delay between piloting and implementing, the university should act quickly to begin piloting a carbon tax with different rebate and revenue schemes so as to not unnecessarily delay implementation. ● Feedback on Revenue/Rebate Schemes: Throughout the pilot, they should collect data and elicit feedback from participants to determine which uses of revenue are preferred, how easy it is for units to estimate their yearly charges, and to what level to set the tax. ● Central Power Plant Upgrade: The university should continue with the central power plant upgrade if it is a prudent financial investment. They should also adjust their estimated carbon abatement from the upgrade to take into account the declining carbon intensity of the grid, and the methane leakage that occurs from wellhead to power plant. ● Carbon Neutrality: The university should set an ambitious carbon neutrality goal. Through the use carbon offsets and cap-and-trade permit retirements, there is no reason why the university can’t achieve carbon neutrality by 2020. In the next decade and beyond, cap-and-trade permits or carbon offsets can be seen not as a long-term solution, but as a means of closing the emissions gap to carbon neutrality, while also buying the university time before investing in technological solutions. ● Technology Investments: The university should delay any further investments in technology upgrades until the cost curves for those upgrades meet the cost curves for carbon offsets and cap-and-trade permits. With solar PV, wind, and storage prices expected to continue dropping in the coming decades, it would be unwise to invest now as the university would be locked into an above market rate in just a few years’ time.