incentives paper

Patrick BarnettColin Mon 10am

Anti-Carbon Incentives at UCSB

The administration of UCSB should not adopt a carbon tax on commuting for three

principle reasons. First off, despite many arguments asserting the simplicity of taxes as one

of their best selling points, in the case of a UCSB commuter tax they will be anything but

simple. Secondly, there is nothing to gain in terms of promoting pro-environmental

behavior through this tax, however perverse consequences are very likely to result. Lastly,

too many uncertainties surround the tax, for example the amount of carbon that will

actually be saved. According to Stavins (1998), the most important aspect of an economic

incentive is to choose the appropriate instrument for each particular situation. For the

commute to UCSB, a Pigouvian tax is simply not that instrument.

Taxes have been alluring policy tools in many cases because they can be applied

evenly and straightforwardly (Sachs 2009). Komanoff (2009) argues that British Columbia

enacted and executed a carbon tax in five months, which is impressive and suggests that

the drastically smaller organization of UCSB should be able to implement a similar tax

much quicker. This will not be the case however. A telling illustration of why a tax on

commuting to UCSB would be highly complex to administer is the one area where

Microsoft’s internal carbon tax does not apply, which is employee travel to and from work.

DiCaprio (2013) spent over 18 months researching and designing the carbon tax,

consulting with all levels of the company and applying the tax according to each division’s

carbon output. She stated that it simply would have been too difficult to implement a

system regarding the commute (2013).

1


As Krugman (2010) states, “You can’t put a price on something unless you can

accurately measure it” (p.12). There is no way to accurately measure how much carbon

individual commuters emit at UCSB because that would require costly technology to

monitor such emissions. Employees and students cannot reasonably be expected to

accurately self-report such data unless there are strong incentives in place for them to do

so. As demonstrated by Jensen and Meckling (1994), humans are maximizers that are

willing to make substitutions, in this case reputation or morality for a “larger quantity of

desired things” (p.10), which is the money they will save by decreasing the tax. Anti-

cheating provisions would take the form of penalties, which would be implemented by an

enforcement arm of the administration, necessitating the creation of more bureaucracy.

Stavins (1998) asserts that charge systems in the US have not achieved the benefits

that Pigou envisioned his tax would effect, in part due to the structure of the systems that

were attempting to implement them. As such, the UCSB administration is underestimating

the complexity of this tax and the organizational issues involved to carry it out with any

effectiveness. As Stavins states (1998), “Firms are simply not well equipped internally to

make the decisions to fully utilize these instruments” (p35). An internal carbon tax on

commuting is clearly a complicated incentive instrument. The logistics of implementing it

involve assessing the commuting behavior of more than 20,000 faculty and staff. This is a

staggering number for an administration to manage, considering all of the relevant details.

They include the formula of how the tax will actually be calculated. Variables involved are

the number of people that ride in the same vehicle versus a single occupant, what kind of

vehicle it is (a Prius should be assessed differently than a Cadillac), and how far the

commute actually is, just to name a few.

2


A second line of evidence as to why this tax is a bad idea revolves around the nature

of human behavior. This particular tax will simply not change the status quo of how the

community travels to campus but can only have negative behavioral consequences. The

reason why the status quo won’t change is because of the particular constraints involved.

As Sterns (1997) argues, each individual has unique forces acting upon them that drive

their behavior, and these factor directly into how the UCSB community will react to the tax.

A case in point is that of professor Simone Pulver. She has stated in lecture that the reason

why she doesn’t take public transportation or car pool is because her schedule is too

erratic. Sometimes she needs to be on campus very early and also stay late, and her needs

change quickly as well (2013). These constraints will prevent her from changing her

behavior pro-environmentally because the trade off of more carbon emissions for more

disposable time is clearly worth it to her. If a prominent environmentalist on campus will

not change her behavior to become less carbon generating, there is little reason to believe

any other individuals will as well.

In addition to not changing the existing manner in which people commute, there

very likely will be perverse behavioral consequences that come about as a result of the tax.

One example is the crowding out phenomenon in which intrinsic motivations to act pro-

environmentally can be reduced (Stern 1998) as a result of financial incentives. One

manifestation of this is the free-riding phenomenon, which will increase among the

community members of Santa Barbara if the carbon tax is implemented. Free riding results

because, as Gneezy states (2011), “Introducing private incentives changes the social norm

of contributions” (201). Non-UCSB members of the community will see that the social norm

has changed because UCSB affiliated people will be shouldering more of the burden of

3


reducing carbon pollution. This will allow non-UCSB related people to free ride as they will

assume that the UCSB community is being altruistic. The intrinsic motivation of non-

university community members to drive less and carpool more will be compromised

because others are saving the climate for them so they don’t have to invest as much effort.

The final reason why this tax should not be imposed is due to the high level of

uncertainty surrounding the effectiveness of the tax. It has been well demonstrated that

taxes in general do not specify the amount of the negative externality that will actually be

reduced (Beinecke 2009). Furthermore, employee emissions represent only a small

fraction of the overall campus output (Pulver 2013), therefore counteracting this area of

pollution in isolation is a completely ineffective strategy. As Krugman states (2010), “It’s

the non-negligible probability of utter disaster that should dominate our policy analysis

(p.12). That’s simply not the case with this tax as it targets such a limited area. A truly

effective climate change policy would cast the widest net possible.

In addition to the uncertainty surrounding the amount of pollution that will actually

be attainted and whether it would even make a difference, this type of tax, according to

Harrington and Morgenstern (2004), is “virtually non-existent in the United States” (p.14).

Such a lack of effective examples serves to emphasize the dubiousness of this tax. One of

the rare instances documented in the US where a Pigouvian tax similar to the UCSB

proposal was implemented casts further doubt on the potential effectiveness of the tax. The

success of the “pay as you go” waste tax, which is similar to a commuter tax in that it

charges a fee based on the actual amount of waste, was tempered by the amount of

cheating that occurred when individuals began dumping trash illegally (Stavins 1998).

4


In conclusion, given the complexity of actually executing this tax, the unlikelihood of

it inspiring better environmental behavior and the uncertainty about actual emission

decreases and its unproven track record, the costs of this tax vastly outweigh the benefits.

A substantial amount of commuters to UCSB already use a carbon free mode of

transportation, biking to and from Isla Vista everyday. In addition, there is a class A bike

path in place connecting the campus to the greater Santa Barbara area, further promoting a

green commute.

Ultimately, a cumbersome, unproven and dubious carbon commute tax will not

mitigate the climate impacts that UCSB affiliates make because it is fundamentally flawed.

Administrative resources would be much better put to use on how to make the entire

campus carbon neutral, which would be a contribution that’s six to ten times more

impactful than the small portion commute emissions add. Carbon neutrality is a goal that

Microsoft achieved without needing to take money out of its employee’s pockets (DiCaprio

2013). That’s something that an organization can be proud of.

5


Bibliography

Beinecke et al (2009). Putting a price on carbon. An emissions cap or a tax? Yale 360. May 7 2009.

DiCaprio, TJ. (2013 Oct 31). Carbon tax at Microsoft. Critical thinking about environmental issues. ENVS 106, UCSB.

Gneezy et al (2011). When and why incentives don’t work to modify behavior. Journal of economic perspectives, 25 (4), 191-210.

Harrington and Morgenstern, (2004). Economic invcentives versus command and control. Resources for the future. Fall/Winter 2004, 13-18.

Jenson and Meckling (1994). The nature of man. Journal of Applied Corporate Finance, 7 (2), 4 - 19.Krugman, P. (2010). Building a green economy. The New York Times. 4-11-2010.

Pulver, S. (2013 Oct 29). Incentive solutions. Critical thinking about environmental issues. ENVS 106, UCSB.

Stern, P. (1997). Information, incentives, and proenvironmental behavior. Journal of Consumer Policy. 22: 461-478.

Stavins, R. (1998). Markey based environmental policies. Resources for the future. 98, (26) 1-39.

6

Documents

incentives paper