France\’s carbon tax

The government shelved the proposed carbon tax, one of Mr Sarkozy\’s key reforms, a day after the president replaced a top minister in a reshuffle after his UMP party\’s defeat by Left-wing rivals in regional elections.

Good, because they don\’t need this tax at all.

The plan would have made France the first big economy to tax harmful carbon emissions, aiming to encourage French consumers to stop wasting energy. But business lobbies feared it would penalise French industry.

Mr Fillon said the tax would have to work at a European level so as \”not to harm the competitiveness of French companies,\” according several UMP deputies who met with him in parliament.

Quite why anyone thinks that French companies only compete with those in the EU I\’m not sure. But anyway, that \”first big economy\” part is bollocks, pure and simple.

We in the UK have a number of carbon taxes, fuel duty, APD and so on. But much more than that all EU countries have the functional equivalent of a carbon tax in the cap and trade system known as the EUTS. And you don\’t need to have both cap and trade and a carbon tax. You need only one or the other.

And, as Richard Tol never tires of pointing out, the current EUTS price of 15-20 euros per tonne is about the right price for carbon emissions anyway. All that really needs to be done is to auction off rather than give those permits and we\’re done.

No, really, that would be problem solved.

3 thoughts on “France\’s carbon tax”

  1. “And, as Richard Tol never tires of pointing out, the current EUTS price of 15-20 euros per tonne is about the right price for carbon emissions anyway. ”

    This strikes me as a rather odd claim, like professing to know the correct price of butter.

    How could anyone know the right price of carbon emissions without a market in place for them that fully internalises their costs?

    Tim adds: Because we’d like the price of carbon to reflect the social costs of carbon. Ie, those externalities which are not (and in some cases, cannot be) entirely internalised.

  2. Right, but that doesn’t explain how you arrive at a ‘right’ price, other than by turning a market loose to set the price.

    If you imagine an idealised cap and trade scheme, to stabilise CO2 concentrations at a level of Y ppm (where Y is some normative choice), there must be a cap of X tonnes of emissions over some period. The permits to emit are then auctioned and the price will find some level, which must go up over time (as the permits are finite and can only be used once, therefore supply reduces). In such a system talking about the ‘right’ price of emissions would be like talking about the right price of oil. The price is whatever it is.

    If using a carbon tax instead it is not clear to me where the market mechanism is. But regardless, the price should vary the same way and it is difficult to know what it should be at any given time. You are still dealing with the same problem, in that emissions are a finite resource much like fossil fuels themselves.

    Ultimately the proof of the pudding for any such system is whether or not emissions do indeed stabilise at some level. In the case of the EUETS it is very difficult to determine if that is true, especially when emissions involved in production can effectively be outsourced to China etc.

    Tim adds: But the aim is not to produce a fixed limit of emissions. The aim is to limit the emissions to where the benefit of limiting emissions equals the costs of limiting emissions.

  3. If so then that just changes the problem from a fixed X tons target to a variable X tons – but still not infinite. Much like oil reserves are currently not exactly known but finite.

    The price in the C&T version remains whatever people are willing to bid it up to, which (other things being equal and absent viable alternatives to emissions) must go up over time, because X is ultimately finite no matter how you calculate it.

    How anyone gets from there to a number of 15-20 euros for a carbon tax equivalent is not exactly obvious. In fact it is difficult to see how you can arrive at any number at all for this with any confidence.

    Tim adds: For how the number is reached try reading the Stern Review.

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