Green Growth for the Energy Transition (the French law on energy transition). Act II: survival without an appropriate ecological tax reform?

By Prudence Dato, prudence.dato@univ-savoie.fr, IREGE/University of Savoie (France).

Following the first release of notes (Act I) on the economic analysis of the French law on energy transition, we now focus on the first trouble that may hinder the green growth for energy transition in France despite its ambitious objectives.

Act II; scene 1: when the funding looks perfect

Banks, financial players and private sector are mobilized to support the green growth for energy transition, while public and local authorities are assumed to give incentives and send good signals[1]. Moreover, incentives through tax credit on renovation of buildings, adoption of clean energy, energy efficiency, etc. and through ecological loan (zero-rate loan or attractive interest rate) together with sensitization are proposed to promote the energy transition at individual level.  But is this sufficient to refrain from using polluting energies?

Act II; scene 2: but there is a lack of energy tax reform

The law on energy transition is claimed not to be punitive in the sense that it is silent on energy or carbon taxation. As economic agents are rational, they will always prefer to consume the type (clean or dirty) of energy that has a comparative advantage. In the absence of a dissuasive tax on the polluting energy (CO2 taxation), even though agents are offered many financial opportunities (as stated in the French law on energy transition) to adopt renewable energy, fossil fuels will still be cheaper and more attractive. Then, they will still have incentives to consume dirty energy and will still pollute. In this context, greenhouse gases (GHG) emissions will still increase[2]. Without the appropriate ecological tax reform, the French law on energy transition is only an empty box.

Act II; scene 3: hope can start: the 2014 energy tax reform

The French 2014 Finance Act introduced in January 2014 a carbon component in the "internal tax on consumption"[3]. This new carbon tax relies on household use of coal, heavy fuel and natural gas, according to carbon content. Referred to as the climate-energy contribution, this CO2 tax was set at €7/tCO2 in 2014 and will increase to €14.5/tCO2 in 2015 and to €22/tCO2 in 2016.

However, there exist some energy tax exemptions for energy-intensive companies subject to the EU ETS[4], road transport operators, airlines, etc.; which should be removed. Moreover, the ecological tax reform should be extended to other polluting goods and to polluting activities or sectors like transport, industries, waste, etc. Otherwise, the new energy tax reform is not enough to support the objectives of the energy transition.

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[1] http://www.ambafrance-ro.org/IMG/pdf/plaq-nmte-parlementaires_gb.pdf?2183/064f66751c6ae7cea24ff5fd591bf0a4f7f94164.

[2] De Perthuis, C. (2013) ‘La «transition énergétique»: Les ambiguïtés d’une notion à géométrie variable.’ Working Paper N°21, P.10, Chaire d’économie du climat.

[3] Taxe intérieure sur la consommation (TIC) (in French)

[4] The European Union Emissions Trading System