Tax-happy French eye carbon tax

July 22, 2009

Cynics say the French never saw a market they didn’t want to regulate, or an economic activity they didn’t want to tax. Now this levy-happy nation, with one of the highest fiscal burdens in the world, is eying a new target for taxation: carbon. And in this case, they may just be right.

Former Prime Minister Michel Rocard, a moderate Socialist commissioned by conservative President Nicolas Sarkozy, will present a report on Friday calling for a carbon tax on fossil fuels used in transport and heating (hat tip Les Echos). Speaking on France Inter radio, Rocard confirmed the broad outlines of his complex proposal, which would return some of the proceeds of the “Climate Energy Contribution” in a “temporary and partial” payment to poor households, the elderly and people living in remote areas who are dependent on their cars. The goal would be to preserve the “price signal” needed to change consumer behaviour and reduce emissions of carbon dioxide, the greenhouse gas most blamed for global warming.

Rocard proposes a tax of 32 euros per tonne of carbon next year, rising to 100 euros a tonne by 2030. The proposed levy would add 7.7 cents to a litre of unleaded petrol and 8.5 cents to a litre of diesel fuel from January — raising the price at the pump by between 6 and 8 percent. This is exactly what the Obama administration does not dare do, for fear of angering American motorists in a country deeply dependent on the private automobile.

Les Echos calculates that with the heating fuel surcharge, highest on households using oil- or gas-fired central heating, the cost to some households would be more than 300 euros a year. The tax would raise 8.3 billion euros in revenue next year, roughly half of it from households and half from companies. Part of the proceeds would go to finance the abolition of an unpopular business tax, the “taxe professionnelle”, which helps fund local government. Overall, Rocard says his proposal will be neutral on the tax burden.

Sarkozy told a joint session of parliament last month he would go “as far as possible” in carbon taxation to make France a leader in the fight against climate change. “The more we tax pollution, the more we will be able to ease tax on work and production,” he said. But Rocard’s carbon tax proposal excludes fuels used in electricity generation, which is subject to the existing European Union emissions trading scheme, as well as energy-intensive industries such as steel, cement, glass or aluminium, which are also set to be subject to the cap-and-trade system.

Most experts agree that a carbon tax, based on a global price for carbon, would be the simplest and most logical way to use market forces to bring down greenhouse gas emissions. But it is not politically feasible in most countries.  The French, with their Cartesian logic and their tradition of a strong, dirigiste state, are among the few nations outside the Nordic area with the political will to impose one. We can only hope that other countries will follow in their slipstream.


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