French Government and the Politics of the Carbon Tax
The decrease of gasoline prices at the pump announced by the French government in October is not going to happen any time soon.
Energy and Environment Minister Ségolène Royal followed by Prime Minister Manuel Valls promised to close the fiscal gap between diesel and gasoline in a five-year period by raising taxes on diesel while cutting taxes on gasoline (petrol). The ultimate goal was to encourage car drivers to change their habits. Of France's drivers, 80% use diesel-powered cars because of the existing tax break.
On November 26, however, the Ministry of Finance said that there will be a tax hike on diesel as planned but no drop on gasoline-fuelled vehicles.
The reasoning given is that the implementation of the Climate-Energy Contribution also called carbon tax starts on January, 1st, 2016. Under this new fiscal measure, which will allow State to collect €300 million, two thirds of French car drivers will see higher prices at the pump: 3.5 cents per litre for diesel, and 2 cents for SP 95 (unleaded gas). Meanwhile, the 33% of car drivers who currently use a cleaner unleaded gas, named SP 95 E10, which contains 10% ethanol, will be exempted.
So the fiscal gift announced in October by the government will be nullified by the effects of the long anticipated tax carbon. Even the Ministry of Finance admits that the two separates decisions may be confusing for consumers.
The Politics of the Carbon Tax
The climate-energy contribution is a key provision of the energy transition law voted in last July.The measure aims to quadruple the carbon price by 2030 from €22 to €100 (€56 in 2022)--an optimist goal that has to be re-evaluated by the government yearly in the State budget.
The debate over the climate-energy contribution goes back to the 2007 presidential campaign when Nicolas Hulot, a well-known green activist and now Special Envoy of the French President for Climate Change, asked candidates, including Nicolas Sarkozy, to pledge their support for a carbon tax. The debate became politically toxic both on the right and on the left because of the tax burden and the fact that the policy may have hurt the middle class and low-income households.
The law was struck down by the Constitutional Council on December 2009 putting the issue to rest for several years. The legislative framework proposed a climate contribution which would have increased gradually from €17 at the beginning (instead of €45 as initially expected) to €100 in 2030.
Support from the European Commission
The French government was praised in the recent first State of the Energy Union for the passing of the Energy Transition Law which establishes a “low-carbon development strategy as well as five years carbon budgets until 2030.” The document highlights the implementation of the carbon tax as “a positive initiative” that leads to a “more environmental- and growth-friendly tax system”.
Raising taxes on the diesel fuel without reducing taxes on gasoline fuels may not be the best way to convince drivers and taxpayers to stop using their diesel cars.
Should the energy transition be necessary enacted through punitive measures without financial compensations?