Updated: June 8, 2010 (Initial publication: Feb. 11, 2010)

Sectorial Analysis

II-10.2 : The French Conseil Constitutionnel (Constitutional Council) publishes a December 29th, 2009 decision (n° 2009-599 DC) on the 2010 Finance Act.

by Béatrice Parance

Main information

The {Conseil Constitutionnel} (French Constitutional Council) approves the principle of a carbon tax scheme, but obliges the Government to review its scope.


Context and Summary

The Government has been debating the idea of a carbon tax to penalize carbon dioxide emitters and to make them aware of the cost of their emissions. After the adoption of the Grenelle I Act, a conference of experts presided by former Prime Minister Michel Rocard met in July 2009 in order to think of a way to orient taxation in such a manner as to send price signals capable of orienting energy consumers’ behaviours. The 2010 Finance Act therefore contained a scheme called the Carbon Tax, which was supposed to come into force on January 1, 2010.

Preliminary bills of the Act clearly reveal that the goal of the carbon tax is to implement instruments allowing for significant reductions in of greenhouse gas emission in order to fight global warming, by creating an additional tax on fossil fuels, which would encourage businesses, households, and government administrations to reduce their emissions. The Act created a tax of 17 Euros per tonne of carbon dioxide emitted, compounded by a complex income tax credit scheme in order to refund them a fixed amount of the tax they paid, as well as total exemptions from the tax for the majority of the most polluting industries (power plants, refineries, cement works, coking works, glassworks, the chemical and airline industries, and passenger transport by road), as well as partial exemptions for agriculture, fishing, and merchandise transport by road and by sea.

In its January 29, 2009 decision, the Conseil constitutionnel sanctioned this scheme. After reaffirming that the Charte de l’environnement (Environmental Charter) is considered to be part of the Constitution, especially its 2nd and 3rd articles on the principle of prevention, and its 4th article on the principle of repairing damage to the environment, the Conseil explains that the constitutionality of the scheme implemented by the law must be interpreted according to its conformity with the objective of reducing carbon emissions. The Conseil also remarks that tax breaks or special tax rates can only be justified when they are in the general interest, or when their beneficiaries are specifically taxed by a separate scheme. Yet, the complex scheme implemented by the law means that 93% of carbon dioxide emissions produced by industry would be completely exonerated from the carbon tax, and that activities subject to the tax would represent less than half of all greenhouse gas emissions. Truly, the scheme would essentially tax only heating products and automobile fuels, which are only one of the many sources of carbon dioxide emissions. The decision concludes that the size of the tax exemptions make this law contrary to the objective of the fight against global warming and create a blatant inequality before the law (section 82). Consequently, the Conseil declared this scheme unconstitutional.  

Brief commentary

This decision is particularly important and interesting for two reasons. Firstly, from the point of view of economic regulation, the objective of reducing carbon emissions can be accomplished either by a pedagogical approach, or by a coercive approach. Even though more and more environmental protection associations are taking the first approach, by publishing many reports and films denouncing the cataclysmic effects of global warming, the State has chosen to stimulate progress through force, using taxation. This could be interpreted as a tax incentive to adopt environmentally-friendly behaviours. However, the Conseil constitutionnel has ordered Parliament to take measures appropriate to fulfil the objectives they are supposed to fulfil (which means subjecting polluting industries to the carbon tax). The Government immediately reaffirmed its attachment to the idea of a carbon tax, and its desire to present a new scheme in a Cabinet Meeting as early as January 20, so as to quickly launch industry participation in finding ways that it could participate in the tax scheme. Amongst the ideas already launched, it has been proposed to subject industry to the tax, but allowing them to benefit from reduced and differentiated tax rates according to their sector and their level of exposition to international competition. Certain corporations could also benefit from tax restitutions because of their investments in reducing energy consumption.

On the other hand, this decision strengthens the {Conseil constitutionnel}'s role as a source of law, in a similar way to its 2005 decision on that year's Finance Act, in which it dismissed a tax-shield scheme that did not comply with the constitutional principles of accessibility and intelligibility of the law.

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