French President Unveils Details Of Carbon Tax

by Ulrika Lomas, Tax-News.com, Brussels

14 September 2009

Following months of intense speculation and controversy, French President Nicolas Sarkozy has finally unveiled long-awaited details of a new carbon tax or ‘contribution climat-énergie’, due to enter into force in France on January 1, 2010.

During a recent speech, the President revealed that the new carbon tax will be applied progressively throughout France from next year, with a fixed levy of EUR17 per tonne of carbon dioxide emitted initially imposed.

This figure, although marginally higher than the EUR14 figure recently put forward by French Prime Minister François Fillon, is nevertheless significantly lower than the EUR32 levy first proposed by the government’s advisory panel, led by former Prime Minister Michel Rocard.

Vehemently defending the introduction of the new ‘green’ levy, President Sarkozy reiterated the aim of the new tax, which is to drastically reduce the country’s emissions of carbon dioxide, a polluting greenhouse gas responsible for global warming.

To this end, the President confirmed that the new carbon tax will shortly be levied on petrol, gas and coal, since combustion of these fossil fuels results in the release of carbon dioxide.

Sarkozy confirmed that the new tax will not be levied on electricity, given that 80% of electricity produced in France is currently derived from nuclear power, and, increasingly, from renewable energy sources, while electricity produced from power stations, already forms part of a European quota system for carbon dioxide emissions.

Targeting priority sectors such as transport, housing and agriculture, the tax is designed to reduce the country’s consumption of fossil fuels, and to encourage consumers to opt for more energy-efficient and environmentally friendly products.

Eager to reassure an already anxious nation that the introduction of a carbon tax will not lead to a rise in taxes, President Sarkozy reiterated that the new tax is merely a transfer of taxation, offset by a reduction in taxes in other areas.

Businesses, for example, will benefit from a reduction in local business tax by way of compensation, while households will either be entitled to a reduction in income tax or will be eligible to receive a ‘green’ cheque, depending on whether they are taxpaying or non-taxpaying households.

Individual households will be compensated in full, the President assured. Indeed, this compensation, either in the form of an income tax reduction or a green cheque, will be provided at the start of 2010.

The amount of compensation will be determined by the size of the family and by the location of the family home, the President explained.

A couple with two children, living in an urban area, well served by public transport will, for example, receive EUR112 in compensation, whereas an identical household, living in an isolated rural location, will be entitled to increased compensation of EUR142.

Determined to ensure that both the implementation of the new tax and the process of compensation are closely monitored, the French President announced that an independent commission will be set up in order to guarantee total transparency.

Aware of the dangers of penalising certain industries which are highly dependant on the use of fuel, such as the agricultural, fishing and transport sectors, President Sarkozy made known that targeted support measures will be put in place for these industries for a limited period, in order to preserve their competitiveness, and to allow them the time to adapt.

The government now intends to include the carbon tax in the 2010 Finance Bill, to be presented for debate in parliament on September 30.

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