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France Considers a Tax on Carbon Emissions

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Patrick Bernard / AFP / Getty

Traffic jam in south western France.

It's hard to imagine a new tax getting a bigger cheer from a political leader than the one unveiled by Nicolas Sarkozy Sept. 10. The French President's radical plan to impose a carbon tax on homes and businesses, he said on a factory visit in eastern France, addresses the "question of survival of the human race." Slated for introduction next year, the levy marked the "first step," Sarkozy said, in "a fiscal revolution."

As Europe wrestles with the challenges posed by climate change, France's new tax is unlikely to be the last. Governments in the E.U. and U.S. have tried other big levers in their efforts to choke harmful emissions in recent years. Large, industrial companies in Europe that pollute beyond acceptable levels have to pay up for the permission to do so, for instance; under plans approved by the House of Representatives in June and currently with the Senate, U.S. firms could be required to do the same. But in its bid to meet ambitious targets on greenhouse gas reductions, Europe looks set to try taxing emitters. The French plan, says Christian Egenhofer, head of the energy and climate program at the Brussels-based Centre for European Policy Studies, is just "the first salvo."

Sweden, Denmark and Finland all imposed similar levies as early as the 1990s, but France — should its lawmakers approve the plan — will become the biggest country yet to try taxes to slow global warming. Initially set at $25 per ton of emitted carbon dioxide (CO2), the tax on the use of oil, natural gas and coal would nudge up the cost of a liter of petrol by $0.06 ($0.23 a gallon), Sarkozy said, and diesel by a little more, helping generate roughly $4.4 billion in annual revenues. A pledge to return that money to taxpayers through various new rebates has so far failed to win over the public; two thirds of voters opposed the tax in a poll published by Paris Match days before the announcement. Denis Baupin, Paris's green deputy mayor, likened it to "treating a gravely ill patient with aspirin."

Sarkozy compares his new tax to other divisive issues in the country's recent history that went on to win public backing, from abolition of the death penalty to decolonization. But momentum behind the idea of such a tax in Europe has been sluggish in recent years. Instead, European governments have thrown their weight behind the E.U.'s Emission Trading Scheme (ETS), which, since 2005, has granted the regionĺs industries a limited number of permits to emit harmful gases. Companies that pollute less than their allocation can sell their remaining permits to others that are busting their limits.

Arguments over the cap and trade system, as it is known, and especially its effectiveness compared to a carbon tax, have fizzed for years. Both mechanisms slap a price on emissions, and urge those affected to invest in more efficient uses of energy. Critics of taxes say that they're open to fluctuation and that certain industries can win exemptions, undermining a tax's efficacy. Opponents of cap and trade systems, meantime, level similar charges. This much is sure: while taxes might fix the short-term cost of emitting CO2, helping homes and businesses figure out how much to invest in energy saving measures, they don't guarantee a drop in emissions. Cap and trade schemes, on the other hand, set the desired emissions level first. "If our aim is to reduce emissions," says Jonathan Lash, president of the World Resources Institute, a major Washington-based green NGO, "I'd go with the cap."

So why bother with the tax? The logic for Europe is simple. The E.U. has pledged to slash greenhouse gas pollution by a fifth of 1990 levels by 2020. But the bloc's Emission Trading Scheme only covers around 40% of its emissions. The U.S. plan, by comparison, will cover roughly double that portion, says Simon Tilford, chief economist at the Centre for European Reform in London. (Unlike the U.S., Europe, didn't include the petroleum sector in its own scheme, preferring to more heavily tax the industry instead.) Extending the "fiendishly complicated" system, as Tilford calls it, would be enormously difficult. Brussels "is worried that this system is not yet fully perfect," says Egenhofer of the Centre for European Policy Studies, "that if you get diffuse sources, such as households and cars, it gets very complex, and potentially expensive."

That means other member states are likely to follow France's lead and embrace a new tax, Egenhofer says. Sweden, current holder of the E.U.'s rotating presidency, wants to see the tax policy expanded across the region. With voters everywhere bracing for fiscal belt-tightening, this just might be the best time to push a new tax through.
With reporting by Bryan Walsh / New York

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