Tue, Jan 01, 2019 - Page 9 News List

Unfair carbon taxes drive French working class to the barricades

By Adair Turner

For governments everywhere, the shadow of the “yellow vests,” whose protests wrecked France for several Saturdays before Christmas, now looms over policies to combat climate change. In the face of street violence, President Emmanuel Macron has canceled a planned increase in the diesel tax. Other countries’ officials will take note, and auto and oil industry lobbyists are — no surprise — urging them to be warier.

However, many of the demonstrators are avowedly not opposed to action on climate change. Among the multiple demands of the bottom-up and disparate street movement is a call for higher taxes on aviation fuel, rather than on diesel.

Action to address climate change is being pursued at the expense of those least able to bear the cost, participants say.

They have a good point. Macron’s policy was a perfect example of how not to impose higher carbon taxes. It was introduced with insufficient consideration of its consequences for income distribution, and the wider economic and political context.

The policy combined a gradual increase in taxes on gasoline and diesel with additional short-term increases in diesel tax to reflect adverse local pollution effects. Together with rising crude oil prices, by November last year, this had driven French diesel prices up by 16 percent from 2017. The announcement of a further increase this month threatened to take that rise to 23 percent.

This was a huge increase to impose on owners of existing vehicles, which could not be immediately replaced. And the effects were greatest for people living in rural areas and small towns, where travel distances are typically longer and public transport is less available. Moreover, the benefits of improved air quality in these areas are less relevant than in Paris or other big cities.

To the protesters, these seemed to be policies imposed by an out-of-touch metropolitan elite, many of whose members had recently received a large cut in wealth taxes, which was introduced following business leaders’ successful lobbying of French Minister of the Economy and Finance Bruno Le Maire at a conference held alongside the Aix-en-Provence Opera Festival. It is difficult to imagine a more politically tone-deaf approach to policymaking.

Experts and policymaking elites must avoid repeating in relation to climate change the mistakes that distorted their approach to globalization. Economic models predicted that freer trade and immigration would increase global economic efficiency and per capita income. However, sound economics should also have foreseen that there were bound to be losers as well as winners, with the losers — and potential populist voters — often concentrated in the same smaller towns and rural areas that form the backbone of the ”yellow vests” movement.

Similarly, analyses predict that the costs of achieving a zero-carbon economy by 2060 would be less than 1 percent of global GDP and that the average effect on consumer prices would be trivial. Yet within that aggregate global total and those price averages, important distributive and transition effects would require careful management.

High carbon prices are a crucial policy tool to drive emission reductions and limit harmful climate change. Far greater auto fuel efficiency in Europe than in the US reflects significantly higher gasoline and diesel taxes. In industrial sectors such as steel, cement and chemicals, carbon prices are needed to unleash a market-driven search for least-cost emission reductions. In aviation, higher prices for conventional jet fuel would drive the rapid development of green alternatives. However, imaginative policy design is essential to overcome political resistance and avoid adverse distributional effects.

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