II-10.3: Opinion of the French Economic, Social, and Environmental Council (CESE) on Environmental Taxation and the financing of public environmental policies, published on 18 November 2009

http://www.conseil-economique-et-social.fr

Context and Summary

 In an opinion on “environmental taxation” and the financing of public environmental policy, adopted in a plenary session on 18 November 2009, the {Conseil économique, social et environmental} (CESE - French Economic, Social, and Environmental Council) heavily criticized the “Carbon Tax”, as presented in the bill of the Finance Act for 2010. The CESE explains that the success of environmental, economic and social ‘transitions’ -- societal evolutions towards more environmentally-friendly modes of production and consumption--require the support of civil society, and can thereby function as a vector for democracy.

Substantially, the CESE thinks that ‘environmental taxation’ has to be included in a long-term reflection that includes alternative modes of productions and consumption, as well as a major overhaul of the tax system, which should take into account both environmental issues, social cohesion, and economic efficiency. From this point of view, the “Carbon_{Tax” was intended to promote awareness by the public and by businesses of the environmental cost of greenhouse gas emissions. However, the CESE points out that the rise in prices that the Carbon Tax would engender seems lost, due to the current, and very important, abolition of the Professional Tax. In detail, the CESE regrets that the tax redistributions planned by the law were not replaced by subsidies to households that take steps to make their homes environmentally friendly, since households are one of the most heavy sources of CO2 pollution.}

On the recourse to market mechanisms to limit corporate emissions, the CESE regrets that these mechanisms are not being used by the government in order to augment the financial resources being consecrated to greenhouse gas reduction policies in sectors that are not covered by quotas, especially by reallocating proceeds from quota auctions to emissions reduction measures in buildings, transport, and agriculture. To this effect, the CESE believes that the necessity of regulating the market of greenhouse gas quotas would be better served by allocating proceeds to solve the issues that justified the establishment of such markets in the first place. In this way, the incentive effect of the market would be combined with the curative effect of regulation.

Furthermore, the CESE insists on the necessity of integrating environmental taxes into a larger reflection, including consideration of household energy constraints, which is one of the priorities of environmental policy.

Brief commentary

Taxation is one of the best instruments for environmental regulation on a national level, for it can apply to different categories of the population (people, businesses, local governments), and incite them to modify their behaviour in order to adopt less-polluting forms of transportation and housing. The Carbon Tax was integrated by Parliament into the Finance Act for 2010, but was sanctioned by the Constitutional Council in its 29 December 2009 decision on the Finance Act, which stated that the legislative mechanism voted on by Parliament was incoherent with the stated objective of reducing greenhouse gas emissions. The Government first declared that it would think of a new mechanism by consulting with industry, before declaring on 24 March 2010 that it had decided to abandon the project of a Carbon Tax. This abandonment was officially justified by the pursuit of a Europe-wide mechanism that would not harm the competitiveness of French businesses. However, some people analysed this retreat as a political move following the defeat of the majority party in recent Regional elections.
Whatever the case, the CESE’s opinion and the fate of the Carbon Tax are highly instructive on the difficulties of implementing environmental regulation mechanisms on a national scale, which might harm business competitiveness because of the cost of anti-pollution measures. A double balance has to be achieved between environmental protection and the efficacy of the competitive market, on one hand, and between national regulation and foreign regulation ruling economic operators in competition with domestic economic agents, on the other.