L’impôt carbone

The carbon tax was ruled to be in conflict with the constitution of France. The proposed French carbon tax is very similar to the Irish carbon tax (but 2 euro higher). The stated reason (IN THE GUARDIAN) is that emissions already regulated under the EU ETS would be exempt from the carbon tax. This is exactly as it should be. Anything else would be double regulation. In fact, as I argue here, a domestic tax on an internationally traded permit would not reduce total EU emissions (it would reduce French emissions and increase emissions elsewhere in the EU) but it would increase costs in France and the EU as a whole.

[DELETE: A bad decision, so.]

This may well have ramifications for EU climate policy, probably in the form of a renewed call for an EU wide carbon tax.

ADDITIONs: translated press release, original press release by the Constitutional Court

The court’s decision seems to rest not so much on the fact that some will pay taxes and others need permits, but rather that the permits are given away for free. The court did not rule in favour of double regulation, but against grandparenting for some.

FURTHER ADDITION:

Courtesy of Sarah Parlane, a new translation

Press release
Decision n° 2009-599 DC – December 29, 2009.
Finance Act for 2010.

On December 29, 2009, the Constitutional Council, by its decision n ° 2009-599 DC, ruled on the Finance Act 2010 which had been seized by over sixty members and over sixty senators. Applicants challenged the reform of the business tax which will be substituted by a territorial economic contribution. They also challenged some propositions relative to the carbon tax plan, the per diem work injury, the increase of the
domestic consumption tax for fuels and the extension of the active solidarity income to some young people under twenty-five years.

[…]

Secondly, the Council found that, in relation to the carbon tax, the broadly applicable authorized exemptions were contrary to the objective of reducing global warming and generated some “tax discrimination” in relation to public contributions. As a result it has censored the whole policy regime relative to the carbon tax (articles 7, 9 and 10).

II – Contribution carbon.
Article 7 of the law introduced a carbon tax. The parliamentary analysis outlined that the objective of this measure is to introduce a mechanism capable of reducing greenhouse gas emissions significantly in order to reduce global warming. To achieve this, it advocated “to impose an additional tax on fossil energy consumption” to induce businesses, households and governmental agencies to reduce their emissions.

However, Articles 7 and 10 of the Act also stipulated some exemptions, discounts, partial refunds and specific rates. According to these, the following emissions were not subject to the carbon tax:
– those of the thermal generating plants producing electricity,
– those of the 1018 most polluting industries such as refineries, cement producers, coke and glass factories,
– those of chemical industries relying heavily on energy,
– those of double-use products,
– those of energetic products used in electricity consumption,
– those of air and public transportations.
Furthermore, a discounted rate applies to the emissions issued from agricultural production, fishing, road freight and shipping.

14 thoughts on “L’impôt carbone”

  1. “A bad decision, so.”

    Au contraire. Is there a justification for taxing one category of the population and giving another category a free pass? Not if you believe in egalite and fraternite, otherwise you have a return to ancien regime privelege.

    ‘Course, it’s fine in Ireland. We kow-tow to our master here.

    Would the property bubble have happened in the intensity it did if there was a similar equality-based attitude to tax breaks on property? Favouring first-time buyers, investors, hotel and golf course builders, mortgage holders?

  2. @Yoganmahew
    Fair enough. See the edits.

    The decision as portrayed by the Guardian is a bad one, but it is hard to argue with the decision as portrayed by the Constitutional Court itself.

    The question is: What next? The simple solution is to put a tax of 100% on the value of grandparented permits (as changing the rules of grandparenting would require a renegotiation with the European Commission, Parliament, and Council).

  3. Does it follow that an end to grandparenting (auction the permits) would rescue the French scheme in the eyes of the Constitutional Court? Not such a bad decision then?

  4. @Colm
    Indeed. The court ruled that you can’t tax one half of society and grandparent the other half. As they ruled on the tax, they threw out the carbon tax — but the principle is sound.

  5. @Richard Tol

    What proportion of Ireland’s carbon footprint is accounted for by electricity demand? For each 1 per cent rise or fall in electricity demand in Ireland, by what percentage does the carbon footprint rise or fall? Would it be a significant blow to Ireland’s carbon footprint targets if electricity demand in Ireland started to grow at its pre-recession rate again (having fallen during the recession)? Would it cost us a lot of euros in relation to carbon trading?

    I ask this because underlying electricity demand in Ireland appears to have started rising again in the past few months. By that I mean that it has started to rise, even after allowing for the fact that we have moved into winter. I know this because Eirgrid publishes the demand for electricity in Ireland every 15 minutes on its website.

    Because of the fall in economic activity, electricity demand fell sharply between mid-2008 and mid-2009, by around 7% or so. From May 2009 on, electricity demand was 6% to 7% below the corresponding month in 2008. However, the y-o-y fall started to decline towards the end of 2009. It now looks as though the y-o-y fall in December will be only about 1.5%. And, for the past couple of weeks, daily electricity demand in Ireland has been higher than on the corresponding days of 2008, the first time this has happened consistently since the recession began.

    Part of the explanation is the cold weather. But, its unlikely that this is the whole explanation. On average, this December has not been significantly colder than last December (it was cold in December last year too). I checked the Eirgrid website a few minutes ago. Electricity demand in Ireland this New Year Eve appears to be up by about 3% on last New Year Eve, yet the temperatures have been pretty similar. I am reluctant to draw too many conclusions just yet. I am hoping it signals renewed economic growth, but we need to see if the trend persists for a few months and, in particular, to see if it persists into the next spell of milder weather. But, its quite possible that we are now moving into renewed growth in electricity demand in Ireland at close to its pre-recession rate.

  6. @Richard,

    Prsumably the anomaly (which caused the French Constitutional Court to rule against the carbon tax) will also arise in Ireland. Upto end 2012 (end of ETS II) the ESB will continue to receive free EUAs yet pass the cost/value of these on to consumers in final prices.

  7. @Paul

    Sure. I don’t know whether the France Constitutional Court sets a precedent in the Irish legal system. The French ruling was that carbon dioxide is carbon dioxide. I would think that inequality is more important within sectors. UCD is under the ETS, but other universities are not. Glanbia is under the ETS, but smaller dairies are not.

  8. yoganmahew

    Well said! The decision is a good one. Sad to say no move here to refer NAMA to the Supremes ….

    The translation is awful but it is clear that the way the law was to operate was not merely unfair, but was contrary to the reason for the law: to reduce carbon entering the atmosphere!!!! How terribly logical and so French!

    Permits are therefore, bad news! Reduce Carbon they say. Do not permit some to increase carbon.

    “The Council found that, by their importance, the exemption schemes
    established by law were brought contrary to the objective of fighting against the global warming and creating a break characterized by equality
    It has, consequently, censored the whole system on the contribution of carbon (Articles 7, 9 and 10 Finance Law)”

  9. @Richard,

    Thank you and Gelukkig Nieuwjaar!

    A number of points arise:

    1. It is for the lawyers to decide on the possibility of cross-jurisdictional precedents, but I think the principle underpinning the French Constitutional Court’s decision is pretty near universal across common law and the Napoleonic Code. It would make an interesting case before the European Court of Justice, since the anomaly identified in this judgement arises in any EU member-state that proposes a carbon tax.

    2. I accept that intra-sectoral impacts may be important (funny that they do not seem to have been highlighted by advocates of a carbon tax before now), but I wonder, in practice how significant they are when compared to the approx. €300 million a year windfall that the ESB captures from consumers.

    3. The economic prescription is almost invariably “pure”, but the practicalities of getting a scheme such as the ETS up and running are “messy”. In effect, member-states had to be “bribed” with national allocations greater than they required so that, in turn, large emitters, in particular, power generators, could be “bribed” with windfall gains. These windfall gains should be squeezed considerably in the next phase of the ETS from 2013 (ETS III), but it does raise a question about the wisdom of introducing a carbon tax in non-ETS sectors while these windfall gains are being captured.

    4. Irish electricity consumers did, temporarily, benefit from the application of the ESB’s windfall gain (between 1 Oct. 2008 and 30 Sep. 2009), but it is being clawed back from 1 Oct 2009. The contortions performed by the CER to achieve this provide an excellent example of the dysfunctionality of BOTH energy policy and regulation in Ireland.

  10. @Paul/2

    Note that I and others at the ESRI have protested against grandfathered permits at every opportunity.

    Note also that tradable permits and carbon taxes set things right at the margin. Permit allocation and revenue recycling are separate issues. One battle at a time.

  11. @Richard,

    Thank you. Points noted. And I wish you good luck in these battles. But I would be surprised if you are confident that economic sense will prevail in policy-making when it is confronted with institutionalised economic illiteracy, serious deficiencies in the process of policy design and scrutiny and the narrow political agenda of the current Government.

    And I would like to express my gratitude (which I’m sure is shared by other posters) for the effort you put in to engage with points raised on the threads you initiate. This engagement is quite limited on other threads. I fully accept that time constraints and the pressure of other commitments limit the ability of other contributors to engage. Of course some contributors initiate many threads and this also limits the time and scope for engagement. Perhaps fewer posts (or a wider spread of responsibility among the named contributors) might lighten the (individual) load and facilitate more engagement that would generate more light and less heat.

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