By Sue Landau
France has abandoned an increase in a carbon tax on fuel after a month of vehement protests, challenging the political feasibility of such levies as a tool for fighting climate change.
But economists see taxing carbon as the best way to squeeze pollution causing global warming out of our industrial economies.
Why did France’s bid falter? And what else can be done to pursue the fight against global warming?
“Carbon taxes are good policy, an important part of the portfolio, but unlikely ever to be sufficient on their own,” concluded a recent article in Vox that reviewed forecasts of carbon taxes’ impact on cutting emissions.
The theory behind taxing carbon is simple. The price of polluting is negligible compared with the social cost of pollution. So put a price on carbon and you change that equation, providing the best incentive for governments, companies and ordinary people to stop polluting, economists say.
Some business lobbies (not, of course, those supporting the fossil fuel industry) favor a price for carbon because it gives them an accounting mechanism to factor in climate change risks.
But there is strong opposition to the idea in many parts of the world. In one of the biggest absurdities of our age, many countries still subsidize fossil fuels, even though we now know that carbon emissions from those fuels are close to making our planet uninhabitable.
So the French case could offer pointers for crafting climate-friendly policies that stand a better chance of being accepted.
France, like many European countries, brought in carbon taxes from 2014. The plan under the previous president, François Hollande, was to phase in increases in the tax on fuel, and the next one was due for next January. But as it turned out, the timing was unfortunate for the current president, Emmanuel Macron.
World oil prices began to rise last summer for the first time in four years, putting an end to cheap fuel at the pump. On top of that, the tax rise in January was meant to bring the lower tax rate on diesel into line with that on gasoline (petrol). In a country where four out of five vehicles run on diesel, that was a double hit.
In the end, the government pulled both tax increases under pressure from members of the Yellow Vest movement, who have taken to the streets on consecutive Saturdays since November, blocking motorways, roads, supermarkets and refineries. Fringe elements have rioted in Paris.
Instructively for carbon tax advocates, the Yellow Vest movement’s beef is not so much with the goal of the tax but rather with the lack of any alternative to using their cars. They also complain of an already heavy tax burden. France is a high-tax, welfare state that has increased its tax take significantly since the 2008 financial crisis.
Putting the cart before the horse
People in the movement live mainly in rural areas or on urban fringes, areas with little or no public transport.
For many, the vehicle of choice runs on diesel — subsidized for decades in the mistaken belief that it pollutes less. They use the cars to go to work at jobs that pay too little to cope with yet another hike in prices at the pump.
One problem with a carbon tax on fuel, then, is implementing it before clean alternatives have truly arrived on the ground.
The revolt reveals another defect with carbon levies. As indirect taxes, they are levied at the point of consumption and not based on the incomes of those who pay them. They hit the lower-paid disproportionately hard.
Small impact on transport emissions
Road transport is France’s largest source of carbon emissions, accounting for some 36 percent of the total last year. But carbon levies are expected to have little impact on transport emissions, according to economic forecasts.
“In particular, transportation appears stubbornly resistant to carbon prices,” David Roberts wrote in Vox, reviewing four studies for Colombia University/SIPA Center for Global Energy Policy, published in July.
One of these, from Rhodium Group, found that even if a $50 carbon tax were levied in the United States, when compared with the effect of current policy, it would cut transport emissions only between one and three percent by 2030.
“In transportation, without commercially available liquid-fuel alternatives, the only way to reduce emissions quickly is to drive less, and driving behavior has proven resistant to price pressure,” Roberts wrote.
Carbon taxes, on the other hand, can squeeze harmful emissions out of electricity production by giving clean energy sources a price advantage. But in France, unlike most other countries, electricity generation accounts for only about 14 percent of emissions because low-carbon nuclear power has generated three quarters of the country’s electricity since the late 1970s
Making a carbon tax popular
Although it seems likely that carbon taxes on motor fuel will remain politically taboo in France in the near future, they can be designed to avoid problems encountered there.
“Adopting a carbon tax doesn’t have to disproportionately burden lower-income households,” Joseph Rosenberg of Tax Policy Center said in the Colombia report. “With careful policy design, legislators could use the substantial revenue raised by a carbon tax to achieve a variety of goals, including a wide range of distributional outcomes.”
This is what the Canadian province of British Colombia has done. In 2008, it implemented a tax of C$10 a tonne of carbon dioxide equivalent. The heftiest carbon tax in the world, the levy rose to C$35 earlier this year and will reach reach C$50 in 2021.
The tax is popular with businesses and families alike because it has brought them windfalls – corporate taxes have been reduced, the bottom two tranches of income tax have been cut and a credit for low-income families has been introduced.
Since then, other Canadian provinces were supposed to follow suit, but four refused. So the federal government in October imposed a nationwide carbon tax from next year that will retain the principle of returning cash as rebates to families.
In the United States, taxing emissions is “a political fantasy,” environmental journalist Justin Gillis and energy analyst Jameson McBride argued in an opinion piece in the New York Times last August.
A better idea, they said, would be to introduce a clean energy standard that requires the share of electricity from low-emitting sources to increase over time. This could be done at national, regional or state level and would put pressure on utilities to shift their energy mix to renewables.
Other angles include taking the squeeze on carbon to its source and diverting cash from speculation to climate action.
Under the Paris Climate Accord, responsibility for cutting emissions is shared out by country. Yet 70 percent of the world’s carbon emissions are produced by 100 fossil fuel companies, according to a report last year from the Carbon Disclosure Project. Some are now the target of legal action.
In the United States, some cities and states, and now a group of children, have taken out lawsuits against the big fossil fuel firms for the pollution they cause.
In France, a group of cities and environmental organizations are threatening to sue Total, saying the French oil giant is violating a law that requires the largest firms to assess and adjust their impact on the environment and human rights.
Also in France, Climate Finance Pact, backed by well-known personalities and spearheaded by climate scientist Jean Jouzel, is campaigning for the 2.5 trillion euros the European Central Bank has injected into banks since 2015 to be used for climate finance instead of financial speculation.
Such a move would help technologies and practical alternatives for ordinary people to be up and running sooner rather than later.
Sue Landau is a freelance writer and translator based in Paris. She worked in financial and business journalism for 25 years at the International Herald Tribune, Reuters and the Investor’s Chronicle, chiefly in London and Paris. She reported on energy, new technologies, media and advertising, corporate and industry issues, wealth management and investment, and regional development.