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.
Three ways forward should be considered.
First, to make carbon taxes popular, their economic benefits must be visible to all citizens. A large share of any further increase in gasoline or diesel taxes, or of the revenues derived from economy-wide carbon prices, could be used to fund a “carbon dividend.” If paid equally to all citizens, this would offset the regressive effects that new taxes alone might in some cases produce.
Second, we should pay attention to specific distributional effects and perceptions of fairness. As the demands of the “yellow vests” imply, it is unacceptable that the diesel people use to travel to work is far more heavily taxed than the jet fuel that business leaders will use to travel to Davos this month.
If the global business elite is serious about action on climate change, it should advocate for an international agreement to impose a carbon price on conventional jet fuel, whether via an explicit tax or through a green fuel mandate requiring a gradually rising proportion of zero-carbon biofuel or synthetic fuel. And if international agreement is impossible, the elite should support unilateral domestic action.
Third, governments must carefully manage the transition to higher carbon prices, in particular where taxes interact with volatile commodity prices. Within 10 years, shifting to more efficient electric cars could almost certainly reduce the costs of road transport, benefiting rural and small-town car owners even more than city dwellers. And higher fuel taxes can speed the transition to that end point.
However, some of the French protesters said that their focus is on financial survival until “the end of the month,” not on benefits a decade from now.
Governments must therefore focus explicitly on the pace of total price rises. Intended increases should be gradual and declared far in advance, and they should be delayed when oil prices, and thus pre-tax fuel costs, are sharply increasing. France’s possible 23 percent increase in diesel prices over only 15 months should have been interpreted as a political red flag; effective climate change policy does not require such rapid price increases.
The precise mix of policies must of course vary by country; but without more thoughtful approaches than what was attempted in France, action to address climate change could be dangerously constrained.
Adair Turner, a former chairman of the UK Financial Services Authority and former member of the UK Financial Policy Committee, is chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.
Copyright: Project Syndicate
On May 7, 1971, Henry Kissinger planned his first, ultra-secret mission to China and pondered whether it would be better to meet his Chinese interlocutors “in Pakistan where the Pakistanis would tape the meeting — or in China where the Chinese would do the taping.” After a flicker of thought, he decided to have the Chinese do all the tape recording, translating and transcribing. Fortuitously, historians have several thousand pages of verbatim texts of Dr. Kissinger’s negotiations with his Chinese counterparts. Paradoxically, behind the scenes, Chinese stenographers prepared verbatim English language typescripts faster than they could translate and type them
More than 30 years ago when I immigrated to the US, applied for citizenship and took the 100-question civics test, the one part of the naturalization process that left the deepest impression on me was one question on the N-400 form, which asked: “Have you ever been a member of, involved in or in any way associated with any communist or totalitarian party anywhere in the world?” Answering “yes” could lead to the rejection of your application. Some people might try their luck and lie, but if exposed, the consequences could be much worse — a person could be fined,
On May 13, the Legislative Yuan passed an amendment to Article 6 of the Nuclear Reactor Facilities Regulation Act (核子反應器設施管制法) that would extend the life of nuclear reactors from 40 to 60 years, thereby providing a legal basis for the extension or reactivation of nuclear power plants. On May 20, Chinese Nationalist Party (KMT) and Taiwan People’s Party (TPP) legislators used their numerical advantage to pass the TPP caucus’ proposal for a public referendum that would determine whether the Ma-anshan Nuclear Power Plant should resume operations, provided it is deemed safe by the authorities. The Central Election Commission (CEC) has
When China passed its “Anti-Secession” Law in 2005, much of the democratic world saw it as yet another sign of Beijing’s authoritarianism, its contempt for international law and its aggressive posture toward Taiwan. Rightly so — on the surface. However, this move, often dismissed as a uniquely Chinese form of legal intimidation, echoes a legal and historical precedent rooted not in authoritarian tradition, but in US constitutional history. The Chinese “Anti-Secession” Law, a domestic statute threatening the use of force should Taiwan formally declare independence, is widely interpreted as an emblem of the Chinese Communist Party’s disregard for international norms. Critics
RSS