In what would be easily the world’s biggest carbon tax shift, French President Sarkozy has begun advocating for robust carbon tax coupled with rebates or tax reductions:
The tax would be initially based on the market price for carbon dioxide emissions permits, which is now euro17 ($24.74) per ton of carbon dioxide, Sarkozy said. At that level, the government expects to raise euro3 billion, which will be entirely returned to households and businesses through a reduction in other taxes or repaid via a so-called “Green Check,” Sarkozy said.
The result would be a shift of the tax burden from other revenue sources to energy derived from fossil fuels in an effort to discourage their use.
Gasoline, diesel fuel, coal and natural gas will be subject to the tax, but not electricity, Sarkozy said.
C’est bon. Not only is this an exceptionally good tax shift, but it’s also a good demonstration that carbon taxes and cap-and-trade systems can go hand in hand.
France is a charter member of the world’s largest carbon cap and trade program, the EU ETS. And while the ETS has done a fine job (despite what you may have heard), its biggest flaw is that it is limited in scope to major emitters of carbon such as power plants and industrial facilities. By applying a carbon tax to home heating fuels and transportation fuels, France can do what virtually no one else has done: price carbon comprehensively across the economy.
Wonky tangent: I’m giving extra points for setting the carbon tax rate at roughly the same price as emissions permits in the cap-and-trade program. That helps ensure that carbon pricing doesn’t simply engender a shift between sources of carbon but rather engenders a shift away from carbon altogether.
The main lesson here, however, is this: carbon taxes and cap-and-trade can work together. No really, they can. You can use the different pricing systems for the same sources of carbon—as both British Columbia and Quebec will presumably do if the Western Climate Initiative becomes operational—or you can use the different pricing systems for different portions of the economy, as France may do. Let this be a lesson to all you one-true-way carbon pricing zealots out there.
It sounds geeky, I know, but single-system carbon pricing advocates can make religious fanatics look downright moderate. Of course, there are advantages and disadvantages to carbon taxes just as there are for cap and trade. We can and should debate the merits of these systems. But I wish everyone would acknowledge that they can be complementary and they are not mutually exclusive.
Well said, Eric, and I do my best to talk about “carbon pricing” to cover both options. But it’s worth noting that complications ensue when the two policies overlap, and in general only one or the other will be binding on any particular sector. If you already have one policy in place then it may (or may not!) be the case that adding the other will not get you any additional carbon reductions. So it’s not simple…
The very best thing about a carbon tax is that it is very QUICK to implement. BC implemented ours carbon tax in a few months but we are still aren’t close to a cap & trade regime after years of working on it.It is also very TRANSPARENT, and thus easier for public to understand and believe (key for long term support) compared to cap & trade.People often complain that low initial carbon tax rates…like those we have in BC and that Sarkozy is pushing…are too low to be effective. While they may not greatly effect current behaviour, they are really meant to change future behaviour. They especially are designed to push future fossil-burning machinery and infrastructure purchases toward low carbon alternatives.The first to pay attention are the very biggest fossil fuel users that will save millions by transitioning to low carbon alternatives. As the tax survives and increases each year, more and more people will notice and make key fossil fuel choices as a result. For example an SUV can require 30,000 more liters of gas than a top hybrid. Choosing to buy an SUV instead of top hybrid commits the owner to littering an extra 70 tonnes of CO2 into our climate. At Sarkozy-level carbon tax of about 7 cents a liter it also commits the owner to paying a minimum carbon penalty of $2,000. Not huge, but approaching the green car rebates we see around that do effect sales.But that is the minimum penalty because carbon taxes ratchet upwards each year…and a car lasts 10 or 15 years or more. So that 7c/L will become much more…and the carbon penalty for buying a fossil fuelish car will become very large over the lifespan of the car.Fleet owners will pay attention first, as it should be.Carbon taxes are a great way to get immediate carbon pricing while cap & trade regimes are worked out and loop holes closed.