France Unveils Carbon Tax Consultation Document

by Ulrika Lomas, Tax-News.com, Brussels

10 February 2010

The French government has launched a consultation on its revised carbon tax plans, and has unveiled details of two options for introducing the levy on industrial sectors already subject to the European emissions quota system.

Although the original carbon tax plans, contained in the 2010 finance bill, were approved by parliament on December 18, 2009, they were subsequently censured by the country’s Constitutional Court on December 29.

The Court ruled that the government’s decision to exempt heavy industry from the carbon contribution, purely on the basis of the emissions quota system, which remains free until January 1, 2013, was not justified, and that the tax therefore fails to respect the fundamental principle of equality.

Presenting its consultation document, the government maintained that it had taken into account the issues raised by the Constitutional Court. It also emphasized the fact that every effort had been made to preserve the competitiveness of businesses in France.

The revised text retains key elements of the original carbon tax plans, as approved by parliament:

• The carbon tax rate is maintained at EUR17 per tonne of carbon dioxide emitted.
• For individual households, the provisions will remain the same, based on a bonus-penalty system (bonus-malus).
• For small, medium and large businesses, the implementation of the carbon contribution, combined with the reform of local business tax in France, will merely serve to transfer taxation away from work and investment, to pollution. For certain sensitive and high energy sectors, including the agricultural, fishing and road transport sectors, as well as the maritime and river transportation industries, the previously outlined transitory measures are to be maintained.

The consultation document confirms the government’s intention to levy a carbon contribution on heavy industry, which is already subject to the emissions quota system, until January 1, 2013, and explores two possible options for applying the tax.

The first option considers the idea of levying the carbon contribution on all industries, and proposes the introduction of the tax at reduced rates for those companies that are most exposed to international competition, as well as for those that are the biggest consumers of energy. A series of quantitative criteria will be used in order determine the particular rate of tax. The government is eager find solutions to enable the total contribution to be capped for these companies.

Regarding compensation, companies would be entitled to receive a tax credit on investments aiming to reduce both energy consumption and emissions and to prevent industrial risks.

The second option is based on a bonus-penalty system. Here, all industrial installations would be subject to a carbon contribution at the standard rate of EUR17 per tonne of carbon dioxide emitted.

By way of compensation, each business would received a lump sum tax credit, depending on efforts made to reduce emissions, thereby encouraging and benefiting companies that endeavour to adopt a more environmentally friendly approach, while at the same time penalizing those that do not.

The government plans to introduce the carbon tax on July 1.

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