ENVIRONMENTAL
TAXATION
IN THE FACE
OF THE CLIMATE
EMERGENCY
Summary
September 2019
Conseil des prélèvements obligatoires
(Council of Mandatory Contributions)
2
Summary - Council of Mandatory Contributions
DISCLAIMER
This document is intended to facilitate reading and use of
the Conseil
des prélèvements obligatoires (Council of Mandatory Contributions)
Report
.
The General Report and Special Reports alike are published and may be
consulted on the website www.ccomptes.fr/CPO.
Only the text of the Report is binding on the CPO.
3
Summary - Council of Mandatory Contributions
Contents
Introduction ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± 5
1
Taxation focused on energy
....................................
7
2
Carbon taxation under constraint
.............................
13
3
Conditions for relaunching carbon taxation
....................
19
Conclusion and orientations ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± 27
5
Introduction
Summary - Council of Mandatory Contributions
Almost fifteen years after publication of the Conseil des Impôts (Tax Council) report
"Fiscalité et environnement" (Taxation and the Environment –2005), its successor, the
Conseil des Prélèvements Obligatoires (CPO – Council of Mandatory Contributions)
decided to return to the subject of environmental taxation.
There have been far-reaching changes in environmental taxation since the earlier
report, and the issues involved have become increasingly acute, both as regards
its contribution to achievement of environmental goals and its acceptability
for taxpayers.
This study takes a wide approach to environmental taxation as its starting point,
conventionally defined as all tax measures that have an impact on the environment.
The extreme heterogeneity of measures that this expanded scope includes led
the Council to focus its study on fossil energy taxation and carbon taxation, which
concentrate the main budgetary and taxpayer-sensitivity issues.
In 2018, environmental taxation came in the form of
46 tax instruments whose overall
yield was €56 Bn
, for scope adopted by national accounting. The instruments concerned
are heterogeneous fiscal measures whose environmental purpose is seldom explicit. Most
such instruments were
originally
developed for their yield alone
, until France’s increasing
climate ambitions changed the stakes at play.
Over the past two decades,
France has gradually stepped up its environmental goals
.
At
international level
, it played a key role in adoption of
the Paris Agreement
in
December 2015, the first international treaty of universal scope on global warming.
At
European level
, it has supported the European Union’s commitments with regard
to countering climate change, in particular during adoption of the Energy & Climate
Framework in 2014, which set demanding goals to be achieved by 2030.
France is set on transposing international and European goals into law. The Act of
17 August 2015 on energy transition for green growth set medium- and long-term
goals that aim to bring about a 40% reduction in greenhouse gas emissions by 2030
compared with 1990. The Energy/Climate Bill, which is on the way to being adopted
by Parliament, provides for yet more ambitious goals,
setting a target of carbon
neutrality by 2050
.
These national goals, which are in line with the Paris Agreement, assume significant
acceleration of the pace of emission reduction over the years to come, in particular for
transport and building, which are the two main emitting sectors as well as being the
slowest to adapt. In its first report, published in June 2019, the Haut Conseil pour le
Climat (HCC – High Council for Climate Change) estimates that the pace of greenhouse
gas emission reduction is almost 50% slower than it needs to be if the goals that have
been set are to be achieved.
6
Summary - Council of Mandatory Contributions
Introduction
All the international and European commitments that France is party to assume proactive
action to reduce emissions. Various instruments may be deployed to this effect, including
regulation, emission allowance markets, taxation and subsidies.
Regulation
, through prohibition or supervision of behaviours and practices, would appear to
be the most suitable mode of intervention in the face of the irreversible threats to the ecosystem
and risks to public health. However, its uniform character does not take enough account of
special situations and regular oversight is required.
The market
is supposed to ensure optimal division of effort among polluters. However, it is
not suited to pollution disseminated by large numbers of operators. This is why the European
Union Emissions Trading System (EU ETS), implemented in 2005, concerns some 11,000 energy-
intensive facilities and covers around 45% of emissions in the European Economic Area (EEA).
Environmental taxation aims to ensure
that prices include negative externalities resulting
from human activities (including greenhouse gases, local pollution, harm to biodiversity, and
noise). Carbon taxation aims to encourage economic actors to adopt new consumption and
production behaviours. To do so, it increases the price of fossil fuels and combustibles (coal,
natural gas and petroleum) in order to discourage their use.
Conversely, use of public subsidies
(aids to low-carbon transition, investment expenditures
on infrastructures and buildings, etc.) aims to reduce the relative cost to consumers with
regard to the most environment-friendly solutions.
In practice, France’s climate policy mobilises all these instruments.
In 2014
, following two failures in 2000 and 2009,
France introduced a carbon tax into
its tax system, in the form of a tax on fossil energies
intended to reduce carbon gas
emissions. This initiative, which was part of an international dynamic towards development
of carbon pricing systems, was brought up short following the social protest movement that
came to a head in autumn 2018, which led to the 2019 Finance Act freezing the tax rate.
The CPO wished to examine the consistency of environmental taxation instruments in
relation to France’s climate goals and other public policy tools±
Special attention was paid to the question of carbon taxation’s acceptability, with in-
depth examination of its effects on households±
France’s fiscal policy has also been set in a European and international context±
To draft this Report, the CPO drew on micro- and macroeconomic simulations designed to
measure impacts on the GDP, companies, household incomes and greenhouse gas emissions
in various of the climate/energy component’s trajectories.
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Summary - Council of Mandatory Contributions
Taxation focused
on energy
Bringing together a range of disparate
measures,
environmental
taxation
still
only accounts for a small proportion of
mandatory levies and focuses on energy.
Developed by sedimentation of succes-
sive layers with yield as its primary focus,
its aims were transformed two decades
ago by France’s goals with regard to
reduction of greenhouse gas emissions.
In France in 2018,
environmental taxation came
in the form of 46 tax instruments
with an overall yield of €56 Bn,
a little less than 5% of all
mandatory levies
Revenue from environmental taxation
represented 2.4% of the GDP in 2018: its
share in national wealth had decreased up
until 2010 but has increased significantly
since 2015.
Share of environmental taxation in
France’s GDP
Source: CPO, based on Eurostat data
The increase is essentially due to the
dynamism of the yield from the Taxe
Intérieure de Consommation sur les
Produits Energétiques (TICPE – Internal
Tax on Energy Product Consumption),
with introduction of a carbon component
in 2014, which was increased in 2018,
and the matching of diesel fuel and
petrol taxation.
With tax expenditures and
other tax measures connected
with the environment,
environmental tax revenue
comes to €87 Bn
Numerous tax expenditures are attached
to environmental taxes. The CPO identified
38 altogether, for a total of over €13 Bn in
2018. Most such mechanisms concern the
TICPE, with 23 tax expenditures for a total of
€5.8 Bn.
The majority are unfavourable to the
environment and may well be regarded
as supporting fossil energy consumption.
Although they are not recognised as
environmental
taxation
measures,
other tax instruments may also be
taken into account when measuring
revenue from environmental taxation:
such is the case with the Versement
Transport (Mobility Payment – €8.5 Bn)
and taxes and charges on removal of
household waste (€7.66 Bn).
1
8
Summary - Council of Mandatory Contributions
Tax issues connected with the environment
Source: CPO
France now falls within the
European average as regards
environmental taxation’s
share in the GDP (3±7%)
France used to be below the European
average with regard to environmental
taxation.
Since
inclusion
of
a
carbon
component in the TICPE, however, the
difference has tended to disappear.
Comparative evolution of the share
of environmental taxation in France
and the European Union
Source: CPO, based on Eurostat data
France is now one of the large Western
European countries where environmental
taxation
accounts
for
a
significant
percentage of the GDP (United Kingdom:
2.4%; Spain: 1.8%; Germany: 1.8%), with
Italy still ahead however (3.3% of the
GDP) due to high taxes on fuels.
Taxes on energy account
for 83% of revenues from
environmental taxation
Taxes on energy can be broken down into
two groups:
l
taxes on fossil energies, first among
them being the TICPE (€32 Bn in
2018), which has included a carbon
component since 2014;
l
taxes on electricity (€10 Bn in 2018).
A form of taxation originally
developed for its yield alone
Design of taxation on fossil energies is
typical of taxes whose sole purpose is to
generate revenue, with a wide base and
a rate low enough not to be dissuasive, in
contrast to strictly incentive taxes.
Most of the revenue from fossil energy
taxation goes to the State’s general
budget.
A
percentage
of
revenue
from the TICPE was nonetheless used
to
finance
transfers
of
competences
to local authorities in the context of
decentralisation.
Taxation focused on energy
Other instruments
€17.9 Bn
Tax expenditures
€13.2 Bn
National
accounting
€55.9
Bn
Behavioural
purpose
Scope integrating environmental
tax expenditures
€6.1 Bn / 2.9% GDP
Expanded scope (national accounting +
tax expenditures + other instruments
separate from national accounting)
€87 Bn / 3.7% GDP
Scope of national accounting:
€55.9 Bn (incl. TICPE: €30.6 Bn) /
2.4% GDP/ 4.9% of MCs
Taxes with direct
behavioural purposes
9
Summary - Council of Mandatory Contributions
Evolution of use of TICPE yields
Source: Regulatory Laws; DGDDI; AFITF
New issues created by the climate
change policy
Since signature of the Kyoto Protocol in
1997, international climate negotiations
have aimed at reduction of greenhouse
gas emissions, in particular by means of
better carbon pricing.
It was in this context that the European
Union implemented an Emissions Trading
System (EU ETS) in 2005, applied to 31
countries in the European Economic
Area. More recently, the Paris Agreement
on
Climate
Change,
adopted
on
12 December 2015, aims to step up the
international response to the climate
threat.
Following
these
international
negoti-
ations, a growing number of countries
have provided themselves with instru-
ments aiming to "put a price" on carbon,
either through taxes or via emission
allowance
market
systems.
At
end
2018, 25 countries had implemented a
carbon tax.
Despite
ongoing
progress,
existing
instruments
still
continue
to
cover
a
limited
percentage
of
the
world’s
greenhouse gas emissions.
Share of world carbon emissions covered
by carbon pricing instruments
Source: CPO, World Bank data
Creation of a carbon
tax in France in 2014,
after two failures
In 2014, creation of a carbon component
to internal consumption taxes on fossil
energies
(oil,
natural
gas
and
coal)
provided France with a fiscal tool centred
on reduction of carbon emissions.
Taxation focused on energy
10
Summary - Council of Mandatory Contributions
Creation of the carbon component in
2014 followed two failed attempts:
l
in 2000, the Constitutional Council had
censured the projected extension of the
Taxe Général sur les Activités Polluantes
(TGAP – General Tax on Polluting
Activities) to fossil energy products;
l
in 2009, the Constitutional Council
censured creation of a climate &
energy component, largely due to the
numerous exemptions provided for.
The Government’s decision in 2014 to add
carbon taxation to existing taxes on fossil
energies aimed to guard against any risk
of censure for undermining equality of
taxation.
Presented as an incentive tax, the carbon
component was coupled with an upward
trajectory over several years, designed to
enable taxpayers to gradually reorientate
their behaviours, as regards heating and
transport energy alike.
Simplified chronology of international climate negotiations
Source: MTES, Key climate figures in 2019
The moratorium in late 2018
However, in a context of rising pre-tax
oil product prices, acceleration of the
carbon tax trajectory and the increase in
diesel/petrol taxes included in the 2018
Finance Act gave rise to a social protest
movement that led to the new provisions
being frozen in the 2019 Finance Act.
This questioning of the ongoing increase
in carbon taxation may be explained by
several factors:
l
the risein world oil prices, which
raised "pump prices" in its turn;
l
The upward trajectory adopted in
the 2018 Finance Act, which was
significantly higher and more rapid
than in most of the other countries
that had introduced a carbon tax,
Sweden in particular;
l
the feeling that there was a lack of
transparency on use of revenues and
planned compensations.
Taxation focused on energy
11
Summary - Council of Mandatory Contributions
Comparative trajectories of carbon tonnes in Sweden and France (1991-2022)
Source: CPO (Stockholm French RES data and 2018 Finance Act)
Taxation focused on energy
13
Summary - Council of Mandatory Contributions
Continuing
reinforcement
ofFrance’s
climate goals justified increase recourse
to carbon taxation in order to encourage
households and companies to modify
their behaviours.
Despite its being an effective environ-
mental policy instrument, operation of
carbon taxation is subject to constraints
that limit its flexibility.
Although effective in reducing national
emissions, carbon tax may act to reduce
exposed sectors’ competitiveness and
increase volumes of carbon imported. It
is also a proportionally greater burden
on less well-off households and those
distant from large urban centres, which
may weaken its acceptability.
France’s climate goals cannot
be achieved unless there are
significant changes in behaviours
Boasting an economy less dependent on
carbon than other G7 countries (7.19 t
CO
2
per capita, 0.187% of the GDP),
France has set itself highly ambitious
environmental goals±
In
line
with
the
European
Union’s
ambitions,
the Act of 17 August 2015
on energy transition
for green growth
adopted the goal of reducing greenhouse
gas emissions by 40% between 1990
and 2030, and reducing greenhouse
gas emissions fourfold between 1990
and 2050, while bringing the share of
renewable energies up to 32% in 2030
and reducing energy consumption by
50% by 2050.
Continuing on from the December 2015
Paris Agreement on climate change, it
decided to bring the carbon neutrality
goal fifty years forward compared with
European commitments, which involves
decreasing greenhouse gas emissions
sixfold by 2050.
The July 2017 Climate Plan, the December
2018 National Low-Carbon Strategy, the
January 2019 Multiyear Energy Plan and
the Energy & Climate Bill, which should
be definitively adopted by Parliament
in autumn 2019, are all expressions
of
the
France’s
reinforcement
of
its
environmental goals.
Although they are consistent with the
commitments made in the context of the
Paris Agreement,
they are nonetheless
highly
ambitious
and
cannot
be
achieved without major collective and
individual efforts±
Yet France is behindhand on the goals
set by the Act of 23 August 2015 and the
current pace of emission reduction is half
of what it should be in relation to the
targets adopted.
Carbon taxation
under constraint
2
14
Summary - Council of Mandatory Contributions
Evolution of French greenhouse gas
emissions since 1990
and carbon budget goals
Source: CPO
Greenhouse gas emissions in France
decreased by 19% between 1990 and
2018, thanks to major contributions by
the manufacturing industry (-42%) and
energy production (-39%). Reductions
were
more
limited
in
the
building
sector, however (-8%). Transport sector
emissions even increased by 10%, while
the aviation sector managed to limit
growth of CO
2
emissions to 14% between
2000 and 2017 even though numbers of
passengers increased by 54%.
Carbon taxation may make a
significant contribution to
the drop in
national greenhouse
gas emissions
With
introduction
of
a
price
signal,
carbon taxation aims to discourage use
of fossil energies and make alternative
energies
more
cost-effective
when
used in companies’ production processes
and households’ direct consumption
(fuels and heating). Hence, it creates
substitution
effects
(insulation
of
a building, replacement of "energy
sieves", installation of boiler operating
on renewable energies, or renewal of a
fleet of cars to ensure a low-carbon
footprint).
Academic work, empirical studies carried
out in other countries and simulations
conducted by the CPO all demonstrate
carbon
taxation’s
effectiveness
in
contributing
to
reduction
of
pollutant
emissions. The instrument has its limitations
nonetheless.
A risk of increase in carbon
imports
An increase in the carbon component
only has a limited effect on the GDP level;
its impact may be positive when revenues
are recycled to reduce other mandatory
levies
and/or
fund
compensation
mechanisms. How great an impact it has
will also depends on how interest rates
react and wage dynamics, which are likely
to limit positive effects on employment.
However, it also acts to significantly
increase
carbon
imports
("carbon
leakage"). It is therefore essential to
consider all emissions connected with
imported products consumed by French
citizens, and monitor the evolution of the
"carbon footprint".
Carbon taxation under constraint
15
Summary - Council of Mandatory Contributions
The carbon footprint and carbon
leakage
The term "carbon footprint" refers to the
sum of emissions produced on French
soil
and
emissions
connected
with
imported products consumed, minus
emissions
connected
with
exported
products.
"Carbon leakage" refers to the share
of carbon emissions connected with
imports and which result either from an
increase in emissions due to relocation
of
carbon-intensive
industries
in
regulated countries to others that are
not,
a
phenomenon
known
as
the
"pollution haven", or from an increase in
emissions due to a drop in energy prices
on world markets following a drop in
demand
leading
to
introduction
of
carbon pricing.
In
2017,
France’s
carbon
footprint
(estimated at 749 Mt CO
2
eq) was 1.7 times
higher than national emissions, including
exports (446 Mt CO
2
eq). France’s per
capita carbon footprint increased by
almost 7% between 1995 and 2017, from
10.5 to 11.2 t CO
2
eq per capita, in contrast
to domestic emissions (-27% per capita).
Hence,
the
reduction
of
national
emissions brought about by the carbon
tax is partially compensated by the
increase in imports, which acts to limit the
reduction of France’s carbon footprint.
Evolution of France’s carbon footprint
between 1995 and 2016
Source:
Draft
National
Low-Carbon
Strategy,
December 2018
Variations in households’ energy
bills more the result of fossil energy
market prices than taxation
Energy
expenditures
connected
with
accommodation and transport account
for about 3% of households’ overall
budgets, a percentage that has remained
largely unchanged for some time.
Households’ "real" energy bill and purchasing
power by consumption unit since 1990
Source: CPO, based on National Accounts – INSEE
Carbon taxation under constraint
Indices 100 in 1990 in constant euros
160
150
140
130
120
110
100
90
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
“Real” housing unit energy bill per CU
Purchasing power per CU
“Real” fuel bill per CU
16
Summary - Council of Mandatory Contributions
Since 1990, households’ expenditures on
fuels have increased less rapidly than their
purchasing power. At the same time; the
rise in pump prices of fuels has resulted
less from taxation than from world oil
prices: the share of taxes in the pump price
of diesel fuel fell from 80% in 1995 to 63%
in 2018, about 8% of which was for the
carbon component.
However, the share of taxes on fossil
energies in household budgets depends
on how much they use their cars and how
they heat their homes.
Regressive energy taxation
for households
Like other indirect taxes such as VAT,
energy taxation is a regressive form of
taxation that depends on income levels
and place of residence. Hence, the 20%
least well-off households devote 7.2%
of their income on energy expenditures,
as against 2.1% for the 20% wealthiest
households.
Bills, energy efforts rates and energy
taxation effort rates according
to households’ incomes
Source: CPO, based on the Prometheus model (MTES-
CGDD, updated 2017, prices and legislation January
2019, incomes 2018)
Energy taxation is more of a burden on
rural and periurban households, due to
the greater need for road travel, than it is
on those located in large urban centres.
Bills, energy efforts rates and energy
taxation effort rates according to
households’ living areas
Source: CPO, based on the Prometheus model
(MTES-CGDD, updated 2017, prices and legislation
January 2019, incomes 2018)
Overlapping the approach by income
with
the
approach
by
location
highlights the greater vulnerability
of less well-off households located in
rural areas and medium-sized urban
areas with up to 200,000 inhabitants±
Effects on companies vary
considerably depending
on sectors
Companies account for 61% of national
greenhouse gas emissions and are
responsible for 36% of revenues from
taxes on fossil energies±
Carbon taxation under constraint
Bills in €
Energy cheque net EER
Energy taxation effort rate (incl. VAT)
Average total EER
Quintiles of total income per CU
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Effort rate in % of household’s total income
q1
q2
q3
q4
q5
0
2
4
6
8
10
12
14
16
18
20
7.2
16.0
10.5
15.3
8.7
7.2
4.5
4.8
4.1
3.4
2.1
Housing unit bill incl. tax
Transport bill incl. tax
Bills in €
Energy taxation effort rate (incl. VAT)
Average total EER
Effort rate in % of household’s total income
Rural
municipality
(22%)
Urban unit
of under
20,000 inhab.
(18%)
Urban unit of
20,000 to
200,000
inhab. (19%)
Urban unit of
200,000 to
1,999,999
inhab. (25%)
Paris
urban unit
(17%)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
0
2
4
6
8
10
12
14
16
18
20
4.5
9.4
8.3
7.7
7.1
4.8
3.9
3.5
3.3
2.1
Housing unit bill incl. tax
Transport bill incl. tax
17
Summary - Council of Mandatory Contributions
Distribution of CO2 emissions
and fossil fuel taxation
by major sectors and activities
(except EU-ETS)
Source: CPO, based on the CGDD’s ELFE model,
emission
figures
2016,
legislation
2019.
Note:
Metropolitan France only; the steel industry is
included in the energy branch.
Apercentage of companies’ emissions are
subject to the European Union Emissions
Trading System (EU ETS), where prices are
set at lower levels than the carbon price
resulting from energy taxation, and are
not included in the carbon tax base. In
addition, a number of sectors exposed to
international
competition
benefit
from
exemption mechanisms.
Effective carbon pricing levels result from
the economic instrument deployed (tax
or trading system), the energy product
consumed and related tax level, and tax
exemptions or reductions. Combination
of all these parameters leads to highly
heterogeneous effective pricing levels by
sector and type of fossil energy.
The heterogeneity of implicit carbon
prices also results in tax expenditures, for
the most part relating to the TICPE.
The transport sector is subjected to
the highest level of effective carbon
pricing by taxation (€204.6/tCO
2
), due
to the fuel tax burden and importance
of environmental externalities. The cost
is four time higher than in the tertiary
sector, nine times higher than for industry
and 15 times higher than for agriculture.
In the event of an increase in carbon
taxation, the most heavily penalised
companies would be those in sectors
that consume large quantities of fossil
energies.
Reallocation of carbon tax
revenues limited by the erosion
of its tax base
Use of revenues generated by carbon tax
is limited by erosion of the energy tax
base, which itself depends on the rapidity
of economic actors’ behavioural reaction
to increases in the tax by reducing their
consumption of carbon products.
Economic theory defines the "second
dividend" as the possibility of using
environmental tax revenues to lower other
mandatory levies with a view to improving
the tax system as a whole.
Several factors lead to the conclusion
that the erosion of the fossil energy tax
base on which carbon taxation is based
is already underway±
Carbon taxation under constraint
18
Summary - Council of Mandatory Contributions
Carbon taxation under constraint
According to simulations carried out by
the CPO, the tendential yield of energy
tax instruments could erode by €9 Bn in
constant euros in 2030 compared with
2019, including €3 Bn for the carbon
component. In the hypothesis assessed by
the CPO, in which the carbon component
price is set at €100
2030
/tCO
2
in 2030, extra
carbon component revenues would not
compensate for the contraction of revenues
from fossil energy taxation due to the
erosion of its tax base. Only setting a higher
price would enable generation of extra
revenues compared with the 2019 level.
In addition, international comparisons
and the recent failures met with in France
could nonetheless encourage allocation
of at least a proportion of revenues to
payment of compensations to the most
affected households in order to ensure
the
carbon
tax’s
acceptability.
The
budgetary flexibility required to fund
such compensations would be limited,
however, if the incentive purpose of the
carbon tax took effect with a consequent
decrease in tax revenues.
19
Summary - Council of Mandatory Contributions
With
the
freeze
on
the
carbon
tax
trajectory resulting from the 2019 Finance
Act, France has suspended the main tool
that it had introduced, somewhat late in
the day, in order to reduce greenhouse gas
emissions not covered by the European
Union Emissions Trading System.
This halt in proceedings has not led to
any limitation of environmental ambitions.
On
the
contrary,
the
already
highly
demanding goals set by the 2015 Act on
energy transition for green growth are on
the way to being reinforced with a view to
achieving carbon neutrality by 2050.
Achievement of this target assumes active
mobilisation of all environmental policy
instruments, while drawing lessons from
the social protest movement in autumn
2018 as far as acceptability is concerned.
Consequently, the Report provides orienta-
tions based on three focuses.
Carbon taxation
to be incorporated
into an overall strategy
Returning to a trajectory of increasing
carbon taxation
The continued freeze of the carbon tax
at its 2019 level, €44.6/tCO
2,
would not
enable obtainment of a drop in emission
levels great enough to achieve the goal of
40%
reduction
of
emissions
in
2030
compared with 1990. At best, it would
enable a tendential reduction of around
25% in 2030.
Return to a carbon tax trajectory could
contribute significantly to efforts to reduce
greenhouse gas emissions.
Scenarios and hypotheses adopted
The CPO selected two scenarios for return to a
carbon tax trajectory.
The first adopts a trajectory of relatively
moderate
increases,
with
a
target
of
€100
2030
/tCO
2
by 2030
, as set by the 2015
Act on energy transition for green growth,
which took up the conclusions of the 2008
Quinet Report on the shadow price of carbon.
The
"steps"of
annualincrease
would
be
relatively modest, to the order of €5/tCO
2
a year, assuming a return to the carbon
tax trajectory as from 2020 (i.e. an annual
increase to the order of 1.1 to 1.3 current
euro cents per litre of fuel). It would result
in an increase in taxes on fossil energies
only slightly higher than an inflation-linked
indexation.
The
second
hypothesis
takes
the
increase in carbon taxation to its limits,
drawing on the value of climate action
calculated by the 2019 Quinet Report
and adopting a carbon pricetarget of
€250
2018
/tCO
2
by 2030
, i.e. an almost sixfold
increase in ten years. The "steps"of annual
increases would be more consequent, to the
order of €25/tCO
2
on average every year (i.e.
an annual increase to the order of 5.6 to 6.5
current euro cents per litre of fuel).
Conditions for relaunching
carbon taxation
3
20
Summary - Council of Mandatory Contributions
The CPO assessed to two trajectories up
to 2030, one moderate (€100
2030
/tCO
2
),
and the other more ambitious (€250
2018
/
tCO
2
), enabling obtainment of a further
reduction in emissions from 11 to 39 Mt
CO
2
in 2030 compared with a hypothesis
in which the carbon component is frozen
at its 2019 level.
Conditions for relaunching carbon taxation
Evolution of national greenhouse gas emissions and impact
on levels of carbon taxation by 2030
The
two
trajectories
would
enable
emission reductions of 29% and 34%
respectively compared with 1990, without
being able to achieve the -40% goal set by
law by carbon taxation alone.
Estimation of supplementary reduction of
greenhouse gas emissions in 2030 with the
two carbon tax trajectory hypotheses
Source: CPO, based on the results of the ThreeME
model
The choice of carbon tax trajectory, which
is up to the Government, must take
account of the foreseeable effects on
households and companies, as well as the
constraints of an open economy.
The
CPO
assessed
the
effects
on
households of an increase in energy
taxation according to the two hypotheses.
Households’ average energy bills would
increase:
l
to the order of €13 a year on average,
with a target of €100
2030
/tCO
2
in 2030;
l
to the order of €56 a year on average
with a target of €250
2018
/tCO
2
in 2030.
Source: CPO
21
Summary - Council of Mandatory Contributions
However, analysis of the rise in carbon
taxation’s impact on households cannot
simply be limited to the increase in the
average energy bill, as the impacts of
such an increase are highly disparate,
depending
on
incomes,
location
of
households and how their members
travel.
Conditions for relaunching carbon taxation
Cost overruns connected with an increase in the carbon tax in 2023 compared
with 2019 according to the two hypotheses, depending on quintile of income
and size of urban unit of residence
Source: CPO, based on the Prometheus model’s results (MTES/CGDD).
Results with elasticities
Necessary reconsideration
of tax expenditures affecting the
effectiveness of carbon taxation
The carbon tax base would gain from
being extended with a view to maximising
environmental effects and strengthening
the general sense of fairness by better
distribution of efforts.
There are 23 tax expenditures attached
to
the TICPE
alone,
and
their
cost
(€5.8 Bn in 2018) is increasing rapidly
(+€1.9 Bn since 2012). If we add the
exemptions
granted
to
air
transport
and
the
maritime
sector,
there
are
26 derogation measures in all accounting
for over €10 Bn in tax revenue losses.
22
Summary - Council of Mandatory Contributions
The TICPE reimbursement mechanisms,
which lead to total exemption from
carbon taxation for the sectors to which
they apply – the road freight sector in
particular,
which
nonetheless
makes
major
contributions
to
greenhouse
gas emissions – need to be gradually
abolished.
Sectors exempt from carbon taxation
or enjoying reduced rates should be
gradually integrated into the ordinary
system,
although
certain
derogation
mechanisms could be maintained, above
all with regard to the agricultural sector.
Reform of tax expenditures could be
carried out as follows:
l
redirect tax expenditures to goals
favourable to the environment;
l
abolish TICPE reimbursement rates in
favour of road freight (€1.1 Bn);
l
include a carbon component for eco-
nomic sectors enjoying exemptions:
international air transport, interna-
tional and national sea transport, river
transport and fishing;
l
bring certain reduced rates on non-
road transport diesel fuel into line
with ordinary rates.
Better coordinate environmental
taxation with other tax instruments
Such is the case with the transport sector,
whose pollutions other than those con-
nected with greenhouse gas emissions
could be covered by other instruments:
l
an increase in the pricing of external-
ities connected with road use could
be achieved through introduction
of a national kilometre tax on heavy
goods vehicles;
Conditions for relaunching carbon taxation
Overview of exemptions of European and French origin
Source: I4CE, Point Climat no.56, 2018
23
Summary - Council of Mandatory Contributions
l
improvment
of
the
fight
against
atmospheric pollutions could justify
alignment of diesel fuel taxes with
petrol taxes, as well as experiments
with city tolls;
l
achievement of the goal of transition
to a cleaner car fleetcould be im-
proved by adapting various different
tax mechanisms, including review-
ing methods for calculating addi-
tional tax on registration certificates,
the income tax "kilometric scale"
and tax advantages connected with
company cars.
Conditions for relaunching carbon taxation
Increase in carbon tax, mobilisation of other tax instruments
and reduction of tax on fossil energies
Source: CPO
Better coordinate carbon taxation
with non-fiscal instruments
There is also still room for improvement
of coordination with the European Union
Emissions Trading System. The carbon
tax and emission allowance market form
a continuum of instruments countering
the same forms of pollution, but, for the
moment, the price of carbon is still much
lower in trading systems.
Such corrective mechanisms as introduc-
tion of a carbon price cap would help
improve consistency between the two
instruments.
Better assimilate acceptability
issues
From "red caps" to "yellow vests", two
environmental
taxation
instruments
(the ecotax on heavy goods vehicles
and the carbon tax) have illustrated the
gap between the instrument’s positive
rationale and the negative feelings it
arouses, with perception of the tax as
being unfair and ineffective.
24
Summary - Council of Mandatory Contributions
With these observations in mind, several
measures could well help promote ac-
ceptance of the carbon tax and lead to its
development. They are of various origins.
Support mechanisms
to be implemented
In
addition
to
taking
account
of
the
regressive
character
of
carbon
taxation and its impact on the most
affected households’ budgets, the tax’s
acceptability might well be facilitated by
introduction of a compensation system,
which could be temporary or long-term,
flat-rate or targeted.
The CPO assessed the effects of various
kinds
of
compensation
mechanisms,
depending
on
households’
income,
location and mobility.
Opportunities for implementing such
compensations and their nature none-
theless
depends
on
the
trajectory
level adopted.
Acceptability conditions to ensure
Firstly, clarity of the goals assigned to the
tax along with the trajectory’s stability and
visibility would seem essential. Relaunch
of a carbon tax increase trajectory must
incorporate a long-term vision of France’s
environmental goals.
In addition, creation of a mechanism
ensuring transparency in the use of
revenues, without there necessarily being
any legally binding allocations, would
help improve the tax’s acceptability.
Distinguishing carbon taxation
from energy taxation
Distinction, – even dissociation – between
the three taxes on fossil energies and the
carbon tax should be considered, with a
view to making the latter an instrument
distinct from energy taxes, which must
continue
to
fulfil
their
purpose
of
generating revenue. This would enable
a clearer link to be established between
carbon taxation’s environmental goal and
the instrument adopted to achieve it.
Tax choices to be included
in European and international
debates
As climate pollution is by definition an
issue that transcends national contexts,
action needs to be taken at international
and
European
levels
in
order
to
encourage France’s partners to commit to
the samegoals.
A necessary review of the European
energy taxation framework
As it stands, the European energy taxa-
tion framework does not take enough
account of environmental concerns.
In 2011, with a view to correcting its
failings,
the
European
Commission
introduced a draft revision of the Directive
which was nonetheless withdrawn in
2015 due to lack of agreement between
Member States. It would now seem
desirable to relaunch this initiative.
Better protection against "carbon
leakage" at European Union borders
Environmental policies run the risk of par-
ticularly penalising energy-intensive in-
Conditions for relaunching carbon taxation
25
Summary - Council of Mandatory Contributions
dustrial sectors exposed to international
competition.
In order to limit this risk, it would
be
a
good
idea
to
implement
a
commercial
mechanism
at
European
level,
providing
protection
against
uncooperative countries.
Reconsideration of European
exemptions benefiting the air and sea
transport sectors
International air transport of passengers
currently enjoys tax exemption on its
energyconsumptions. It is combined with
European Union law to, in practice,
exempt kerosene from all taxation, except
for recreational aviation.
The air sector generates between 2%
and 4% of greenhouse gas emissions
worldwide. The
rapid
growth
of
air
transport of passengers could well lead
to the sector’s CO2 emissions doubling
between 2018 and 2035.
Harmonised taxation at European level
would seem preferable to a national
initiative.
Conditions for relaunching carbon taxation
27
Summary - Council of Mandatory Contributions
The CPO advocates return to a carbon
tax trajectory, as this tool would
seem to condition achievement of
environmental goals±
Its tax base should nonetheless be
extended so as to cover all forms of fossil
energy consumption. Reconsideration
also needs to be given to air and sea
transport
exemptions,
road
sector
reimbursement
mechanisms
and
reduced rates applicable to non-road
transport diesel fuel, with a view to
gradual alignment on ordinary taxation.
The carbon tax’s behavioural purpose
should be made clearer. For example,
it could be turned into an autonomous
instrument, so dissociated from energy
taxes, whose purpose it is to generate
revenue.
As regards the tax rate: although the
Council has presented and analysed two
evolution scenarios, it is for the public
authorities to decide on the trajectory’s
level in accordance with environmental
goals,
evolution
of
pre-tax
prices
of
fossil
combustibles,
taxpayers’
contributory capacities and possibilities
of substitution.
Successful
return
to
a
carbon
trajectory in France is conditioned
by better account being taken of
acceptability factors, while ensuring
that
overall
levels
of
mandatory
levies do not increase±
Depending on the trajectory adopted,
temporary or long-term compensatory
measures could be created, either flat-
rate or targeting the most vulnerable
households and companies. However,
it is essential that such measures do not
act to subsidise use of fossil energies,
which would negatively impact the
price signal sought by carbon taxation.
Without necessarily resorting to legally
binding
allocations
of
carbon
tax
revenues, it must be possible to bring
transparent monitoring of their use to
taxpayers’ knowledge.
The carbon tax should also be better
integrated into an overall strategy
that succeeds in coordinating all tax
instruments and the various climate
policy
tools:
emission
allowance
markets, standards and subsidies.
Other kinds of pollutions, such as air
pollution, road congestion and sound
pollution, should be covered by other
instruments, possiblyfiscal in nature.
Conclusion
and orientations
28
Summary - Council of Mandatory Contributions
Conclusion
and orientations
Finally, it is essential toinclude France’s
action in a European and international
framework as soon as possible±
The European energy tax framework
should be modernised in order to
assert its environmental purpose more
explicitly and coordinate better with the
emission allowance market.
Initiatives aiming to provide the Europe-
an Union with a commercial protection
mechanism
targeting
uncooperative
territories should be supported.
The exemptions from fuel taxes that
the international air and sea transport
sectors
enjoy
should
be
abolished,
either at international or European level.
1. Return to a carbon tax increase trajectory, coupling the increase:
l
with its inclusion in a clear medium- and long-term trajectory consistent with
environmental goals;
l
expansion of its tax base, through abolition or reduction of tax expenditures (exemptions,
reimbursements and reduced rates).
2. Make the carbon component a visibly autonomous tax instrument, distinguishing
or even dissociating it from energy taxation.
3. Ensure better coordination between the carbon tax and other fiscal and non-fiscal
environmental policy tools, including regulatory instruments and the European
Union Emissions Trading System.
4. Depending
on
the
carbon
tax
trajectory
adopted,
create
compensatory
mechanisms targeting the most affected households, the least well-off in particular,
so as to promote acceptance of the carbon tax and adaptation of behaviours.
5. Ensure transparency in the use of carbon tax revenues.
6. Support initiatives bearing on revision of the European Directive of 27 October
2003 on energy taxation, with a view to creating a harmonised European carbon
tax framework and improving its coordination with the European Union Emissions
Trading System.
7. Support European initiatives on implementation of uniform customs duties on
imports from countries that are not cooperating on environmental matters.
8. Promote abolition of tax exemption on international air and sea transport
fuels among members of the International Civil Aviation Organisation and the
International Maritime Organisation; strengthen the commitments made by the two
organisations with regard to decreasing pollutant emissions; failing this, support
abolition of the two sectors’ energy tax exemptions and introduce a carbon emission
tax mechanism during revision of the European Directive of 27 October 2003 on
energy taxation.
With these observations in mind, the CPO has drafted eight orientations: