The reform of energy taxation : an extension of carbon pricing in France. Jérémy Elbeze

Transcription

1 The reform of energy taxation : an extension of carbon pricing in France Jérémy Elbeze

2 Summary A) The carbon tax in France : a troubled history - A first attempt, at the European level - The 2009 project - Passage in the 2014 Finance Act B) The terms of the introduction of the carbon component in energy taxation - A gradual introduction of the carbon component - A system intended to progress - The maintenance of certain exemptions C) The economic and environmental impacts of the energy taxation reform - A gradual and differentiated increase of energy prices - The use of revenues in an ongoing arbitration - The expected impacts on emissions 2

3 The carbon tax in France : a troubled history The European Failure The European Commission published a first draft for a carbon tax on industrial emissions in In 1992: carbon tax proposal for all kinds of fossil fuels Proposal is rejected (unanimity required for tax issues) Greece, Spain : lower level of industrialization UK : tax decisions are based on national sovereignty The 2009 project Following the recommendations of the Rocard Commission, the government proposed the introduction of a carbon tax with a 17-euro per ton rate. This project was minimized by many amendments but adopted by the Parliament. The Constitutional Council censored it because of too many exemptions which were contrary to the principle of tax equity. Following that decision, the proposal was postponed sine die. 3

4 The passage in the 2014 Finance Act A proposal from Green Tax Committee Created in 2012, the Green Tax Committee is composed of different actors from political, economic, associative and university circles and aims at assessing the existing green taxation system and to make proposals to the government The first proposal of the Committee was to implement a new carbon tax system to regulate diffuse CO2 emissions associated with a progressive reduction of the tax difference on diesel and petrol. The introduction of a carbon taxation system in the 2014 Finance Act Following only a part of the Committee s recommendations, the government introduced a carbon tax project in the draft of the 2014 Finance Act. With very low media coverage, the proposal was adopted in December More than twenty years after the first attempt, France finally gets a carbon tax! 4

5 The terms of the introduction of the carbon component in energy taxation (1) The introduction of a carbon component in the existing energy excise French energy taxation mainly lies on Domestic Consumption Tax (DCT) The carbon tax system is not implemented by the creation of an ad hoc tax but by the introduction of a carbon component in the classic DCT : a transition year The carbon tax system is introduced with a very low rate for this first year : 7 euros per CO2 tonne. Two cases : - If the fuel has a DCT rate expressed in euros per CO2 ton that does not reach 7 /tco2, their DCT rate is increased so they reach it (natural gas, coal and heavy fuel) - If the fuel already reaches this implicit rate, the carbon component does not have any impact in 2014 since it is totally compensated by a symmetrical reduction of the classical component of the DCT 5

6 The terms of the introduction of the carbon component in energy taxation (2) Energy products whose DCT rate changes in 2014 Units DCT rates Coal / MWh PCI 1,19 2,29 Natural gas (heating fuel ) / MWh PCI 1,19 1,41 Natural gas (motor fuel) / m 3 0 1,49 Heavy fuel oil / 100kg 1,85 2,19 Off road diesel fuel / hl 7,2 8,86 Source : Article 32 of the 2014 Finance Act The reform of energy taxation lays the foundation of a carbon taxation system but has a rather low impact on energy prices for this first year However, the 2014 Finance Act provides for a rise in this rate over the next two years. 6

7 A system intended to progress (1) The progression of the carbon component Two successive increases of 7,5 euros will make the rate reach 14,5 /tco2 in 2015 and 22 /tco2 in The price signal will be even higher than this nominal value as the VAT is calculated on the price of energy, taxes included. Annual increase of the DCT by source of energy between 2014 and 2016 Carbon component Carbon component + additionnal VAT Petrol Cents / L 0,00 1,72 1,71 0,00 2,06 2,05 Diesel Cents / L 0,00 1,98 1,99 0,00 2,37 2,38 Off road diesel fuel Cents / L 1,66 1,98 1,99 1,99 2,37 2,38 Domestic fuel oil Cents / L 0,00 1,98 1,99 0,00 2,37 2,38 Heavy fuel oil Cents / kg 0,34 2,34 2,35 0,41 2,80 2,81 LPG Cents / kg 0,00 2,24 2,24 0,00 2,68 2,68 Natural gas (heating fuel) /MWh PCI 0,22 1,52 1,52 0,26 1,82 1,82 Coal /MWh PCI 1,10 2,46 2,46 1,32 2,94 2,94 Natural gas (motor fuel) Cents / m 3 1,49 1,60 1,60 1,78 1,91 1,91 Source : article 265 of «Code des Douanes» 7

8 En centimes d'euros par kg En centimes d'euros par litre En centimes d'euros par litre En centimes d'euros par litre A system intended to progress (2) Evolution of the weight of the carbon component in total DCT ,6% 5,3% 7,9% ,3% 8,5% 12,4% % 97,4% 94,7% 92,1% % 95,7% 91,5% 87,6% Petrol : Classic DCT Petrol : Carbon DCT Diesel : Classic DCT Diesel : Carbon DCT ,1% 33,3% 10 19,4% % 4 80,6% 66,7% 56,9% LPG (motor fuel) : Classic DCT LPG (motor fuel) : Carbon DCT Source : Article 265 of «Code des Douanes» ,8% 6 51,8% 32,7% 4 100% 2 67,3% 48,2% 38,2% Domestic fuel oil: Classic DCT Domestic fuel oil: Carbon DCT 8

9 The maintenance of certain exemptions Some actors will be exempted of tax Installations subject to EU ETS will not see their DCT rate increase over the period. Some partial or total exemptions for fragile sectors have been maintained : hauliers and operators of public transport, taxi operators, farmers, fluvial transport of goods, air transport, fishing and navigation shipping. The carbon tax basis remains relatively large If some exemptions have been reconducted : No new exemptions have been allowed Some traditional exemptions have been canceled (ex : exemption of households gas consumption). Eventually, the basis of this carbon taxation system is wider than that of the 2009 project 9

10 The economic and environmental impacts of the energy taxation reform A gradual and differentiated increase in energy prices The introduction of this tax reform will lead to a gradual rise in the prices of various fuels and oil. In accordance with the principles of the carbon tax, these increases will be differentiated as they will be proportional to the carbon content of the different energy products. Tax increases related to the % of the average price of fuels in Petrol 0,0% 1,3% 2,7% Diesel 0,0% 1,8% 3,5% Natural gas (heating fuel) 0,4% 3,0% 5,5% Heavy fuel oil and others 0,7% 5,8% 10,9% Domestic fuel oil 0,0% 2,7% 5,4% Off-road diesel fuel 2,2% 4,8% 7,4% Source : article 265 of «Code des Douanes» and OECD energy prices database 10

11 The use of revenues in an ongoing arbitration The revenue of the carbon taxation system According to Ministry of Finance calculations, tax revenue from the carbon tax should be 340 million in the first year, 2.5 billion the next year before reaching 4 billion in The use of revenue Of these revenues, the government plans to use 3 billion to reduce corporate income taxes through the financing of a large tax credit for competitiveness The use of the other part of carbon tax revenue is still in an ongoing arbitration. Two major options are still under study : Financing thermal renovations of buildings Redistributing these revenues on a lump sum basis to households in a precarious energy situation 11

12 Expected impacts on emissions Estimated CO2 emission reductions associated with the carbon component of the DCT (in hundreds of thousand tons) Emissions 2014 Réduction 2015 Réduction 2016 Réduction Elasticity Low High Low High Low High Petrol Diesel Natural gas Heavy fuel oil and others Domestic fuel oil Off-road diesel fuel Total CO Source : From article 265 of «Code des Douanes» and datas from «rapport sur l industrie pétrolière et gazière 2013» The environmental effectiveness of the measure will depend on the future trajectory of the rate and its readability over time. It should be noted that although enshrined in the Finance Act, the tax levels for 2015 and 2016 could still be subject to change. It therefore appears that the relevance and effectiveness of this new tool will be dependent on the ability of political power to maintain an ambitious rate trajectory in a difficult economic context. 12

13 Thank you for your attention For more informations : Jeremy Elbeze jeremy.elbeze@chaireeconomieduclimat.org