Thomas White Global Investing
Green Reports

October 7, 2009

The Green Report

France Unveils Carbon Tax
France’s new carbon tax is set to be introduced next year

Jean-Paul cruised to the gasoline station in Lyon and came to a stop. As he filled his car he looked at the price ratcheting up and sighed. His fuel bill would be soon going up if his country’s president had his way.

Jean-Paul was thinking about French President Nicolas Sarkozy’s latest move to fight global warming. On September 10, the French leader unveiled a new carbon tax proposal, aimed at homes and businesses. Slated for introduction next year, the levy marked the first step in what Sarkozy terms a “fiscal revolution.” Currently, the tax is set at $25 per ton of emitted carbon dioxide (CO2) on the use of oil, natural gas and coal, all of which is expected to coax the price of gasoline up by $0.06 per gallon. The government calculates that the tax will cover 70% of the country’s carbon emissions and bring in roughly about $4.4 billion in revenue annually. Notably, electricity will be exempt, as France relies on nuclear power for 80% of its electricity.

Global warming has also been posing a big risk to France’s tourism, which makes up around 6% of its GDP. It has become an increasing menace, causing beaches to disappear along sun-kissed coastlines, snow to melt in exclusive mountain retreats and shortages of water in the country’s art-filled cities. The city’s tourism department expects an alarming three to four degree spike in temperatures by 2100. And a rise in sea levels is expected to exacerbate coastal erosion, which already affects one-fifth of France’s tourist areas.

Sarkozy’s tax proposal has encountered a lot of opposition in political circles, with critics saying the measure is a ploy to fill the state’s depleted coffers. Various polls and surveys taken across the city indicate that roughly two-thirds of all French citizens have also expressed their doubts, saying that the new levy will push up their bills. But Sarkozy has insisted that the impact on incomes will be neutral, as revenues from the new tax will offset cuts in income tax and various other rebates.

France is not the first country to inflict such a tax. Sweden, Denmark and Finland all imposed similar levies as early as the 1990s. But if the tax is approved next year, France will become the first major economy to adopt a greenhouse gas tax that follows in the footsteps of its Nordic neighbors.

France is the latest to join the European Union’s (EU) long raging efforts to fight global warming, which includes a pledge to trim 20% of greenhouse gases from the 1990 levels by 2020. For this purpose, Europe has already introduced an emissions-trading system that requires energy and manufacturing companies that exceed their CO2emission quotas to buy spare permits from businesses that emit less.

But it is wind energy that is making fast progress across Europe. Producing a third of the energy used, wind power received a further boost when an EU law recently passed requiring 20% of Europe’s energy to be obtained from renewable sources by 2020. France has the second largest wind source in Europe after the United Kingdom, and a new target aims for renewable energy to account for 23% of the whole energy consumption in the country by 2020, a savings of 20 million tons of oil annually. Wind power is now France’s fastest growing energy source, with 950 mega watts (MW) of new wind power installations being added in 2008 alone. Today, France’s total installed wind capacity stands at just over 3,400 MW, the fourth largest in Europe.

With these efforts, France might meet its goal of slashing 75% of CO2 emissions by 2050. Sweden, current holder of the EU’s rotating presidency, hopes to see other countries follow France’s lead. As President Sarkozy aptly summed up, “There is no other choice. There is only one planet, a single world and we have a shared responsibility.” And with this, Jean-Claude must now replenish his automobile with gasoline, sharing the responsibility as well.



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