The laying aside of the carbon tax in France: lost opportunity or simple postponement?
By Patrick Criqui and Alain Grandjean, article paru sur le site de la fondation Eni Enrico Mattei
Immediately after a series of bad results in the last regional elections, the French government decided to abandon the project of introducing a carbon tax on diffuse CO2 emissions. Yet the implementation of the French carbon tax had been developed in a remarkable consensus building effort in the past four years, until July 2009. Since then however the project had triggered a lot of debate and turmoil in the political arena and, finally, a veto of the Constitutional Council, three days before its full implementation planned for January 1st 2010. It now serves as the scapegoat for the current political difficulties of the government, in a context of preparation of the next 2012 presidential elections. But this should not lead to forget the economic fundamentals of a project that, in spite of all the disputes, provided a fairly well designed framework for introducing economic instruments aimed at reducing GHG emissions in France. As Michel Rocard, a former socialist prime minister and head of the commission in charge of the carbon tax put it recently: in any case we will be forced to come back to it … and in ten years from now those who dragged their feet on climate policies may be accused of crime against humanity.
Before analysing the possible futures of the French carbon tax, it is useful to comeback on its elaboration process and its characteristics. In France, the idea of a carbon tax takes its roots in the early nineties, by the early stage of the international climate negotiation, when high ranking civil servants in the environmental administration proposed to introduce a carbon tax at French and European level. The consensus was impossible to attain at that time and in the process of elaboration of the Kyoto protocol, the concepts proposed by the US government Quantitative Emission Limitation or Reduction Objectives, legally binding targets and international emission trading took over the carbon tax. The rest of the story is well known, including the conversion of the European Commission to the concept of emission trading in the early 2000s. This was due in particular to the virtue of cap and trade systems in terms of “environmental integrity” and explains the birth of the European Emission Trading System. Whatever is thought of the ETS, of its achievements and of its failures, it leaves the diffuse emissions, in buildings, transport and light industries uncovered by any economic incitative instrument. This is why the hypothesis of introducing a carbon tax in these sectors was again contemplated in France in recent years and in particular during the last presidential elections of 2007, when an influential NGO (FNH or Fondation Nicolas Hulot) asked all candidates to sign a “Pacte Ecologique” that included the carbon tax. Two years later, after a series of study groups and reports involving the administration, academics and representatives of industry, syndicates, NGOs the “Commission Rocard” proposed its vision of a consensus solution. (www.contributionclimatenergie.fr/docs/rocard_rapport.pdf )
The project showed two important features, which will have each an importance in the following developments: first it is considered as a complementary measure to the ETS, which implies that those establishments under the ETS are exempted; second, in order to limit the direct social consequences and potential acceptability problems, it is suggested (in particular by FNH) that the households be globally compensated on a flat base (only the size of the household and its location, whether rural or urban, is taken into account). The latter characteristic will not prevent the political instrumentalization of the carbon tax by some opposition leaders as being socially regressive, which is disputable due to the compensation process. The former feature will be the pretext for the veto of the Conseil Constitutionnel: according to its statement, as large industrial companies do not pay the carbon tax, there is an alleged violation of the basic principle of equality in front of the tax system. As the project was consequently suspended, it became vulnerable to any change in political winds. And this is exactly what happened after the regional elections that lead government and presidency to abandon part of their environmental credo. The declaration indicating that the carbon tax should be first implemented at European level loaded as it is with ambiguities on the nature of the tax, domestic inside EU or as a boarder adjustment mechanism may be seen more as a pretext than a serious reason. Indeed nothing would help more in implementing a European carbon tax or even a European border carbon tax acceptable by the WTO, than showing the example in one large country, with alleged high environmental ambitions.
But the project is not dead: first, economic incentives are still a must to meet the national target of reducing emissions by a Factor 4 in 2050 and second easy technical solutions exist to fix the problem identified by the Conseil Constitutionnel. If there is any inequality in front of the tax system, this is surprisingly not in comparing the status of households and large enterprises: the households are compensated for their payments, while large companies are granted for their quotas, at least until 2013. In pure distributional, terms these are two very near situations. The inequality of treatment may indeed be noticed across the industries: those that are under the ETS with free quotas and those that pay the carbon tax. In order to solve this problem it would be possible, either to accelerate the process of auctioning the quotas even before 2013, or probably still more simply to organize a system of compensation for the small industries submitted to the carbon tax.
Contrarily to what has been debated in the last months around the carbon tax as it was proposed by the Commission Rocard, the principles and architecture though imperfect as any new tax system were sound. No doubt that it will provide an excellent working basis for all those who believe that changing the price system is a condition necessary, even if not sufficient to change the behaviours. Giving a price to carbon still remains the best solution to reconcile the environmental ambition and the democratic dimension of our societies. The sooner will clearly be the better …
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Patrick Criqui, Economist, Director of LEPII-Grenoble
Alain Grandjean, Engineer and economist, Co-founder of Carbone 4






