Nicolas Jacquot

Following a request by French president Nicolas Sarkozy to examine the idea of a national carbon tax, a panel led by ex-prime minister Michel Rocard issued its report on July 28 recommending that France introduce a national carbon tax in 2010. Although many questions are yet to be resolved, the political will for its implementation is serious.

Panel's recommendations

The purpose of the introduction of a national carbon tax (so-called climate-energy contribution, CEC) in France is to limit greenhouse gases and to achieve France's carbon dioxide reduction targets (reduction of 75% in 2020, using 2005 emission levels for comparison). This CEC would tax the fossil fuels that cause carbon dioxide emissions and that are used in transport and heating.

The panel suggested that the carbon tax rate be set at €32 ($46) per metric ton of carbon emissions (the French government would prefer a €15 rate). It also called to raise this rate by 2030 to €100 per metric ton of carbon emissions, through a gradual and predictable path. With the rate of €32, carbon tax would trigger a €0.07 increase in the price of a litre of fuel or a 15% increase in the price of natural gas. The proposed CEC would raise about €8 billion in its first year.

The panel expressed its preference for an additional fee to the existing taxes on energy production and distribution, instead of a differential tax.

Questions to be answered

The compensation aspects of the project raise many questions, as the carbon tax may have a negative impact on households and businesses. The French authorities have promised that the carbon tax would remain neutral and would not harm purchasing power of individuals and competitiveness of companies.

The leader of the panel suggested to provide carbon tax relief adjusted to the household's income level, but this proposal is highly controversial for the time being. As regards businesses, they could expect to see returned to them amounts equivalent to the new carbon tax payments, for instance through reduction in payroll taxes.

Another question still to be resolved is the carbon tax base. The panel advocated the exemption of Emission Trading Scheme sectors, but refused to take a stance as regards electricity. The French government is opposed to taxing electricity, given the fact that 75% of French energy consumption stems from nuclear and hydraulic energy.

The carbon tax is expected to enter into force in 2010. But it will suppose that those politically difficult questions and other administrative details for implementation will be solved soon. The French government may announce the details for the plan in September or October, with a view to have a parliamentary debate before the end of the year.

Nicolas Jacquot (nicolas.jacquot@fr.landwellglobal.com)