Aborted Fuel Tax Initiative in France: Its Ramifications for Green Growth

Mizan Khan, Ph.D., is professor, Environmental
Management, North South University, and currently, visiting
professor, School of Public Policy, University of Maryland, College
Park, USA. Dr Dereje Senshaw – Principal
Scientist at Global Green Growth Institute (GGGI)

By Mizan Khan and Dereje Senshaw
PARIS, Dec 27 2018 (IPS)

Emmanuel Macron was voted to French Presidency in 2017 with the
mission of strengthening the integration of the European Union and
pursuing economic and ecological reforms. So from the outset, he
was set to distinguish himself, not just in Europe but on the world
stage, especially after President Trump pulled the United States
out of the Paris Agreement. So Macron held the summit meeting on
`One Planet’ in Paris last December to push for stronger
environment and climate policy. He also spoke of the environment
when he addressed the Congress in April 2018, stating that “Let
us face it: There is no Planet B.”i

As part of the package Macron initiated the new tax on gasoline
to finance ecological transition and reduce budget deficit. France
was set to increase the diesel tax by 6.5 Euro cents per liter and
the gasoline tax by 3.9 cents per liter, which had already
increased its gas and diesel taxes by several cents this year, and
this shift came after years in which France, and Europe, had
encouraged the use of diesel fuel as being better for the
environment. Macron defended the Contribution Climat Énergie
(CCE), a French version of the carbon tax, whose steady increase in
recent years has brought about a growing dispute over rising fuel
prices. Since its adoption in 2013, the CCE has increased from year
to year, putting pressure on fuel prices. In 2019, a ton of CO2
would have cost of €55 in France, the second highest in Europe.ii
The CCE was decided when oil prices were still low. But it is way
up now. Still fuel taxes are calculated lower than their social
costs.iii

The increase this time was resented by the French voters,
initially by the rural constituencies and then the city dwellers
including the Parisians joined. The result was violent protests for
two weeks led by the Yellow Vest Movement. Finally, the government
gave in, with declarations of some concessions, both by the
President and his Prime Minister, to deflate the protests and
assuage the public. But the rating of the President has plummeted
to the lowest since he occupied the Presidency. Finally, the
proposed tax has been shelved at least for 2019.

Why was the reaction so violent? What has gone
wrong?

Introduction of different types of eco-tax, or fuel/carbon tax
is decades old in Europe and they have not met the same fate. Why?
Media reports and post-mortem of the episode point to a range of
factors:

1. Macron’s government is viewed by a large segment of general
public as elitist, which bank on support from technocrats and
business leaders. The voters at large feel they are marginalized
from any consultations. Even the CCE is reported to be little-known
among French people, many of whom have only recently discovered it
when they are already feeling disgruntled with this year’s tax
rises.

2. It is the increase in the price of oil this year that has
added to the tax’s impact. The price of petrol in France is
already the highest in Europe. The €55 cost of a CO2/ton in
France compares with the European price of €17/ton.iv The French
CCE affects both private individuals and businesses, generating
almost €7 billion a year through the prices of all fuels,
including fuel oil, gas, petroleum, diesel and coal.v

3. These tax inequalities are a problem, according to experts.
The tax disproportionately hits those on the lowest incomes, who
receive an ‘energy cheque’ of €150 if they do not pay any
tax.vi So the CCE, a French version of the carbon tax, whose steady
increase in recent years has brought about a growing dispute over
rising fuel prices. Macron’s tax policies have alienated many in
the middle class — and analysis of the 2018-19 budget showed
incomes of the poorest households would get worse under his
plans.vii

4. The target of spending the revenue generated by this new tax
was misplaced – it was mostly meant for reduction of budget
deficit. Of the €34 billion the government will raise on fuel
taxes in 2018, a sum of only €7.2 billion is earmarked for
environmental measures.viii

5. The most polluting industries are viewed to be paying less,
and many industrial sectors are exempted, including agriculture,
all of the industry sectors enjoy emissions allowances, including
road, air and maritime transport, agriculture and fish farming. The
French ecological tax hits private individuals harder than
businesses due to these exceptions. The Institute for Climate
Economics (I4CE), a think-tank in a memo clarified that removing
these exemptions would bring in twice as much money for France,
around €14 billion.ix

6. Analysts say the fuel tax will disproportionately affect
residents of rural areas, fueling claims that Macron is out of
touch with the French people. Most of the rural residents have to
depend on private cars, and diesel fuel, unlike in larger cities
served by central heating. This was the reason that the protests
began in the provinces and then spread in the cities including
Paris. The fuel taxes represent in the eyes of many an urban
ignorance of the reality of life in rural areas relatively unserved
by train lines or other forms of public transportation. At the same
time the railway company is closing the non-TGV, less profitable
lines in some routes.

7. So, a perception developed among the rural protesters that
they have two Frances, Parisian France and the `other’ France. So
Macron has been dubbed “President of the Rich” by many
working-class citizens who saw him remove the wealth tax from his
rich Paris constituency, then propose a gas tax on his “other”
constituency.x Lionel Cucchi, a spokesman of YVM in Marseille, told
BFM TV that protesters “demands are much bigger than this
moratorium” … we have to stop stealing from the pockets of
low-income taxpayers.”xi So, the issue here is about
redistribution of income.

Experience in other countries

World Bank estimates that 46 countries and 25 sub-national
entities charge some kind of carbon price, even if that policy
applies to only one sector of their economy.xii Sweden and the
United Kingdom have successfully run carbon taxes for years. Sweden
as the pioneer has taxed all forms of energy since the 1950s and
adjusted the levy to account for carbon in 1991, well before
climate change became a high-profile global agenda. The result is
its emissions declined by 26 percent in the years that
followed.xiii

There are other examples of carbon taxes in Europe and beyond.
Many European countries have imposed taxes on emissions of common
air pollutants such as sulfur dioxide and nitrogen oxides. Also, a
number of countries have imposed energy taxes or energy taxes based
partly on carbon content. Some other green growth and
climate-conscious countries have adopted carbon taxes, including
Chile, Spain, Ukraine, Ireland and nations in Scandinavia. Others
have adopted cap-and-trade programs that effectively put prices on
carbon emissions. Many developing countries including Bangladesh,
China, India and some others also have introduced different kinds
of eco-taxes including carbon pricing. However, only around 12
percent of global emissions are covered by pricing programs such as
taxes on the carbon content of fossil fuels or permit trading
programs that put a price on emissions, according to the
International Monetary Fund.xiv

Britain may offer some relevant lessons. It only imposed a
carbon tax on electricity generation in 2013, helping drive
emissions lower. But climate policy has a long and cross-party
history in the U.K with its parliament being almost unanimous in
adopting an aggressive climate bill a decade ago. This cross-party
commitment is the way to implement an enduring climate policy,
which touches the very foundations of modern life. California, for
instance, is the only U.S. state with a strong climate policy. Yet
its first policies came in 2006 at the hand of Governor Arnold
Schwarzenegger, a moderate Republican. Subsequent Democratic
governments have built on that initial foundation.

But Canada is about to offer a test case, with its province of
British Columbia leading a successful case of carbon tax for
several years. In the rest of Canada, despite the success story in
British Columbia, other provinces are dragging their heels. Prime
Minister Trudeau has unveiled a “backstop” carbon tax of $20 a
ton, to take effect in January, for the four Canadian provinces
that do not already have one. Trudeau’s policy, however, is
designed pragmatically: about 90 percent of the revenue from the
tax will be paid back to Canadians in the form of annual “climate
action incentive.”xv Because of the progressive tax rates, about
70 percent of Canadians will get back more than they paid. If they
choose to be more energy efficient, they could save even
more.xvi

However, by design, the British Columbia plan was the simplest:
it slapped a tax on any fossil fuels used for heating, electricity
and transportation. Each person and business was expected to
shoulder the burden of pricing pollution; no loopholes, no
exemptions. This revenue-neutral carbon tax was unbiased: tax was
based on pollution intensity of products or services. This has
induced behavioral change among consumers. The move, the first of
its kind in Canada, placated both conservative economists and
environmentalists.

So, based on experience we can say that the prospects of carbon
taxes may depend on what happens to the money raised. In the
British Columbia case, all the tax money raised went back to the
people. The World Bank has called it the text book instrument. The
economist William Nordhaus, winner of this year’s Nobel Prize for
economics, supported the British Columbian model as an ideal for
export to other economies. Fears that the tax would have a negative
impact on the economy quickly dissipated when the numbers came in,
as reports suggest. The province grew its economy by 16%, far
outpacing any other region of the country.xvii

The revenue-neutral aspect of the tax is novel but has
frustrated some environmental groups, who feel the tax does not do
enough to reduce emissions. So the current British Columbia
government is thinking of modifying the revenue-neutral aspect of
the programme in order to allocate funding for green
infrastructure, deviating from its original revenue neutrality. By
2012, when the tax reached its first maximum level ($30 per ton),
64% of the population supported it. By 2016, the support shot up to
nearly 70% of residents.xviii

So a big difference between Canada’s carbon tax and France’s
carbon tax is where the money is going. In the provinces that will
use Canada’s carbon tax instead of their own plan, 90 per cent of
the revenue from the taxes are expected to be refunded during tax
time, the government says.xix But in France the overwhelming share
was supposed to go for reduction of budget deficit. Without
substantive dialogue with the main stakeholder groups before
designing the programme, it has backfired.

Use of French experience by sceptics

The unhappy experience in France obviously gave fodder to feed
the sceptics like the French Far Right, or Presidents Trump, who
still remains a diehard climate denialist. In a tweeter Trump had
to say that Macron’s setback showed he was right and justified
again that US was not going to clean up pollution caused by others!
Fuel taxes, however, generate revenue that stays inside home
countries without going to pay for others’ pollution. And the
Paris Agreement placed much greater responsibilities on developing
countries than ever before. President Trump’s rugged nationalist
tends to infect some other leaders at a time when there is the need
for promoting multilateralism, as shown in the recent climate
negotiations in Katowice.

Despite Trump’s self-righteous justification, 10 east coast
states have a `cap & trade’ system for carbon emissions since
2009, under which companies have their emissions capped and then
trade any surplus or deficit with others. But Barack Obama, while
president, was unable to pass a nationwide system. Some prominent
Republicans have backed for a revenue-neutral carbon tax, but with
little success yet.

Future for green growth strategy

France’s abortive attempt offers some sobering lessons, with a
dilemma: how do political leaders introduce policies that will do
long-term good for the environment without losing their chances of
re-election? The challenge is to consider the equity and
distributional aspects of introducing environmental/carbon tax,
together with ensuring universal access to clean fuel and
transport. Suh argues that this requires income-group and
spatially-specific policies. This kind of policies aimed at
transition to a low-carbon economy need to be grounded on local and
national level stakeholder consultations for a revenue-neutrality
system, particularly for the poorest. Such a consensus can
gradually mature with intensive campaign of public education and
awareness aimed at behavioral change. The median voters need to be
placated in that in this age of environmental crises, what a
society needs is to penalize the Bads, such as pollution and
incentivize the Goods, such as hard-earned income by the working
class. With this policy for some time, the revenue generated from
environmental Bads can gradually be shifted to a green growth
strategy nationwide.

The tax rises appear to fit within a pro-Green agenda espoused
by Macron’s government. His intentions were not bad in revamping
the culture of polluting driving and the protesters are also not
against climate change or green growth. Simply the time is bad for
the working classes in France and elsewhere, where uneven
globalization and lack of distributive justice do not provide any
cushion to the poorest communities. So the climate-and green
growth-friendly governments must remain in check in devising green
policy instruments such a way that do not backfire & play into
the hands of populist demagogue leaders around.

Finally, we can say that whatever skepticism is there, the
outlook for green instruments like carbon taxes looks bright:
reports show that 88 nations, representing more than half of global
emissions, say they are or will use carbon pricing to tackle
climate change. Furthermore, some states have suggested they would
impose carbon border levies on imported goods from nations that do
not tax carbon. However, this policy should be applied to major
emitters across the aisle.

Let us recall that Franklin D. Roosevelt’s New Deal at a very
bad time in the US was not a tax programme, even if it included
taxes. Instead, it was the greatest of all stimulus and jobs bills.
We now need to craft a Green New Deal based on growth and
distributive justice.

————————————————

i
https://www.theatlantic.com/international/archive/2018/12/france-yellow-vest-climate-action/577642/

ii
https://www.washingtonpost.com/world/europe/frances-protesters-are-part-of-a-global-backlash-against-climate-change-taxes/2018/12/04/08365882-f723-11e8-863c-9e2f864d47e7_story.html?utm_term=.70945e2904f8

iii Suh, S. 2018. Low-carbon transition: changing urgently and
equitably. Available at:
https://www.linkedin.com/pulse/change-urgently-but-slowly-equitably-same-time-sangwon-suh/?articleId=6474975376325115904#comments-6474975376325115904&trk=prof-post

iv
https://www.washingtonpost.com/world/europe/frances-protesters-are-part-of-a-global-backlash-against-climate-change-taxes/2018/12/04/08365882-f723-11e8-863c-9e2f864d47e7_story.html?utm_term=.70945e2904f8

v
https://www.euractiv.com/section/climate-environment/news/french-dispute-over-carbon-tax-highlights-flaws-of-its-ecological-tax/

vi
https://www.euractiv.com/section/climate-environment/news/french-dispute-over-carbon-tax-highlights-flaws-of-its-ecological-tax/

vii
https://www.euractiv.com/section/climate-environment/news/french-dispute-over-carbon-tax-highlights-flaws-of-its-ecological-tax/

viii
https://www.euractiv.com/section/climate-environment/news/french-dispute-over-carbon-tax-highlights-flaws-of-its-ecological-tax/
;
https://globalnews.ca/news/4728184/france-carbon-tax-riots-canada/

ix
https://www.euractiv.com/section/climate-environment/news/french-dispute-over-carbon-tax-highlights-flaws-of-its-ecological-tax/

x
https://thefederalist.com/2018/12/17/carbon-tax-riots-may-breaking-point-frances-socialism/

xi
https://www.nytimes.com/2018/12/04/world/europe/france-fuel-tax-yellow-vests.html

xii https://carbonpricingdashboard.worldbank.org/
xiii
https://www.theatlantic.com/international/archive/2018/12/france-yellow-vest-climate-action/577642/

xiv
https://www.washingtonpost.com/world/europe/frances-protesters-are-part-of-a-global-backlash-against-climate-change-taxes/2018/12/04/08365882-f723-11e8-863c-9e2f864d47e7_story.html?utm_term=.e7c114d785d3

xv
https://www.washingtonpost.com/world/europe/frances-protesters-are-part-of-a-global-backlash-against-climate-change-taxes/2018/12/04/08365882-f723-11e8-863c-9e2f864d47e7_story.html?utm_term=.e7c114d785d3

xvi
https://www.washingtonpost.com/world/europe/frances-protesters-are-part-of-a-global-backlash-against-climate-change-taxes/2018/12/04/08365882-f723-11e8-863c-9e2f864d47e7_story.html?utm_term=.24e04590073f

xvii
https://www.theguardian.com/world/2018/dec/04/how-to-make-a-carbon-tax-popular-give-the-profits-to-the-people

xviii
https://www.theguardian.com/world/2018/dec/04/how-to-make-a-carbon-tax-popular-give-the-profits-to-the-people

xixi
https://globalnews.ca/news/4728184/france-carbon-tax-riots-canada/

xx Suh, 2018 (endnote ii).

The post
Aborted Fuel Tax Initiative in France: Its Ramifications for Green
Growth
appeared first on Inter
Press Service
.

Excerpt:

Mizan Khan, Ph.D., is professor, Environmental
Management, North South University, and currently, visiting
professor, School of Public Policy, University of Maryland, College
Park, USA.
Dr Dereje Senshaw – Principal Scientist at
Global Green Growth Institute (GGGI)

The post
Aborted Fuel Tax Initiative in France: Its Ramifications for Green
Growth
appeared first on Inter
Press Service
.

Source: FS – All – Ecology – News
Aborted Fuel Tax Initiative in France: Its Ramifications for Green Growth