When it comes to climate, the carbon tax represents a major leverage point.
However, the methods used to apply it can make it both the best and the worst of measures.
In failing to observe the fundamental principles of the tax, the French tax promises to be the worst.
The 3 mistakes of the Climate Energy Contribution
Economists generally agree that a carbon tax is the best way to reduce CO2 emissions without affecting growth.
The example of Sweden confirms this.
In fact, the introduction of its carbon tax, which is currently the highest in the world, has not prevented economic growth of 60% at the same time as a 25% reduction in CO2 emissions.
Especially as when the tax was introduced in 1991, Sweden’s electricity stock was already decarbonised.
In particular, three rules are needed to enable this kind of effective implementation:
- Transparency and awareness raising in its implementation
- Redistribution of revenue
- Prohibition of subsidies to alternative energy sources
By failing to comply with any of these, the French carbon tax has only achieved sustainability in one thing: street protests, while climate targets are moving out of its reach.
It is because this tax has been characterized by a dearth of information, a lack of redistribution and a dogmatic abuse of its purpose, which has diluted its effectiveness.
Dearth of information
This tax on the carbon component of fossil fuels was introduced in 2014 under the name “Climate Energy Contribution” (CCE).
Its low rate of €7/TCO2, against the background of the collapse of oil prices in the last quarter, made its introduction even more discreet as it did not constitute an additional tax, since part of the domestic consumption tax (TIC) was simply calculated to introduce a “carbon component”.
This led C. de Perthuis and A. Faure to say that its introduction “was done on the sly, without any efforts to educate voters.”
This is unfortunate, because the principle that makes any carbon tax efficient is the gradual increase of its rate to levels designed to change behaviour.
This was how the ambitiously steep rise in its rate was enacted with the utmost media discretion by Article 9 of the 2018 Finance Bill despite the Senate’s warning, to raise it to €86/TCO2 by 2022. Its current rate of €44.6 / tCO2, from 2018, already gives it the 4th highest carbon taxes in the world, behind Switzerland and Lichtenstein, far behind the €120/tCO2 for Sweden.
Lack of redistribution
In order to limit the negative macroeconomic impact of raising carbon costs to prohibitive rates, the majority of economists advocate using constant tax revenues, as Stéphane Gloriant notes. That is, by reducing other taxes to the level of its revenue.
Where these reductions apply to the most distorting levies, i.e. those which affect taxpayers in the most unequal way, the anti-redistributive nature of these reductions may be compensated for by aid to households to combat fuel poverty. Since this is a tax paid by everyone, even the poorest.
On January 17, 3300 American economists, including 27 Nobel laureates in economics, signed a call for a carbon tax, the 5 fundamental principles of which they highlight.
The fifth principle being:
“To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to [U.S.] citizens through equal lump-sum rebates. The majority of [American] families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices..”
This appeal is in line with the necessary “double dividend” principle referred to by R.Crassous, P. Quirion F.Ghersi and E. Combet:
- On the one hand, an environmental benefit, linked to the diversion of polluting energies due to the incentive of the price-signal,
- On the other hand, the second dividend of the collective gain enabled by tax revenues.
However, although the introduction of the carbon tax in 2014 had been accompanied by this concern, the Senate already noted its lack of a redistributive nature in 2017, noting that: “€180 million in additional household spending is supposed to compensate for an increase of €3.7 billion in energy taxation in 2018 for these same households, which can hardly be taken seriously.”
And we therefore see an increase in the tax with the tax hike to €55/ tCO2 for 2019, against a backdrop of rising oil prices, on the back of historically disastrous reforms.
Worse, this new tax affects those who do not have an alternative, among the less privileged classes, indiscriminately and with great injustice.
Which is bound to ignite revolt.
This use of revenue has deviated from the “double dividend” principle since 2017 by contributing to the Energy Transition Special Allocation Account (CAS TE), in which the carbon tax is indiscriminately mixed with part of the domestic tax on consumption of energy products (TICPE), as C. de Perthuis and A. Faure point out.
And since 2017, the additional costs of electric renewable energy (ENRe), mainly wind and photovoltaic, are no longer reimbursed to EDF through electricity taxes (CSPE), but through this CAS TE, without the amount of this CSPE having been reduced.
Economists generally agree that “an effective tax is also characterized by: ‘…(3) ‘a prohibition on subsidizing alternative energy sources, including renewable sources such as wind and solar energy”.
While the price signal is fiercely effective in changing behaviour, the parallel financing of supposedly relevant solutions undermines the effects all the more because wind and solar are not conducive to decarbonizing an electrical mix that has already been decarbonized to more than 90% since 1995. And has not progressed since then.
However, no less than €121 billion, according to the Court of Auditors, remains to be paid for the additional costs of contracts already entered into before the end of 2017 in wind, photovoltaic and biomethane.
In 2019, €7.3 billion will therefore be spent in support of French electric renewable energies through the CAS TE, which is financed by fuel taxes. Including the carbon tax.
In 2016, the Court of Auditors confirmed that this CAS TE would in fact be supported via the TICPE “mainly thanks to the increasing efficiency associated with the climate-energy contribution (CCE)”.
Rigor and Transparency: Towards the End of a Dogma
Eighty-six MEPs from all sides have just called for “restoration of the carbon tax”.
Their appeal is an opportunity to explain its effectiveness in public debate, but also to recall the necessary principles on which its viability depends.
The time also seems to be right to take stock of the supposed effects of renewable energies, as well as the inside workings of their funding, into which the bulk of the carbon tax revenues are about to disappear.
It is for this purpose that a Parliamentary Commission of Inquiry has just been set up.
On that occasion, its founder, the Hon. Member, Julien Aubert, put it bluntly as follows:
“But why have we been stubbornly investing in renewable energy with no hope of return for 20 years? even considering that “there would seem to be a whole ecosystem of firms and consultants who have flourished greatly in the shade of this ecological transition, or even people who have made fortunes. This needs to have the spotlight trained on it. “
The National Low Carbon Strategy (SNBC) has poured most of its resources into an attempt to decarbonise the electricity generation sector which was already at over 90%. And the intermittent nature of wind and solar power has prevented them from replacing any installed dispatchable power.
The allocation of carbon tax revenues to their financing is further detrimental to its effectiveness.
The size of the sums involved must indeed raise the question of a failed dogma.
Because the same mistakes would lead to the same failures.