Engineering News

French Carbon Tax Going Into Effect Jan. 1; Large Emitters Exempt
September 10, 2009

France will begin taxing carbon dioxide emissions by both households and companies starting next year in the hope that consumers and producers gradually shift to more environmentally friendly goods.

From Jan. 1, a special tax of 17 euros will be levied on each ton of CO2 emitted by fossil fuels such as heating oil, gasoline, coal and natural gas, French President Nicolas Sarkozy said in a speech on Thursday.

"We cannot keep on taxing labor, taxing capital and ignore taxes on pollution," he said.

Like the U.S. and other European countries, France is seeking ways to meet a series of environmental commitments. The French government has pledged to divide its CO2 emissions by four in 2050 from the level of 1990 by relying increasingly on nuclear power - which generates few greenhouse gases - better insulating buildings and boosting the use of renewable energies.

France wants to emulate Finland and Sweden, which have succeeded in curbing CO2 emissions with the introduction of greenhouse-gas taxes back in the early 1990s. Sarkozy is also anxious to show that France is making progress on its environmental promises ahead of a United Nations conference on climate change in Copenhagen in December.

The carbon tax, however, has become a hard sell. When Sarkozy was elected president in 2007, surveys showed that French people backed the idea. More recent opinion polls suggest enthusiasm has faded as people are growing wary that the tax will dent their spending power amid the economic crisis.

In his speech, Sarkozy said the tax would help the French economy grow while being energy conscious. Yet, environmental movements predicted the new tax would be inefficient on two counts: they say it has been set at a low level and criticize compensations the French government plans to give households and business.

"With this tax, the incentive to shift to energy-efficient goods will be close to zero," said Pascal Husting, head of the French branch of environmental movement Greenpeace.

A recent report commissioned by Sarkozy had recommended setting the tax at EUR32 per ton of CO2 in 2010 and increase it by 5% every year in order to reach a level of EUR100 in 2030. The EUR100 mark is seen as indispensable to achieve the broader goal of slashing CO2 emissions, the report said.

The French president said he opted for an across-the-board level of EUR17 per ton because he was concerned that households would not agree to pay significantly higher taxes on CO2 emissions than big industrial emitters - which are already subject to a European Union mechanism aimed at reducing greenhouse gases. European CO2 emission certificates trade at about EUR15.

Green movements are also worried that money raised won't be used efficiently.

Sarkozy, who has pledged not to increase taxes despite France's rapidly widening budget deficit, has said all the money raised through the new tax would be returned to taxpayers.

Households that are subject to income tax will be awarded tax rebates as early as February 2010; those that are exempted from income tax will receive a check from the fiscal administration.

Companies won't be awarded rebates but a local corporate tax will be scrapped to help offset the new carbon tax.

Husting, the Greenpeace director, said it would have been far more effective to give households "green checks" - money that they could spend only on fuel-efficient goods.

Large CO2 emitters, such as oil refiners and steel makers, will be exempted from paying the new tax. The government will propose special compensations for fishermen, farmers and truckers, to make sure they don't suffer from foreign competition, Sarkozy said.

The carbon tax will not be levied on electricity because the bulk of France's power is generated by nuclear and hydropower plants.

Source: The Wall Street Journal

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