WASHINGTON – The single most effective weapon in the fight against climate change is the tax code – imposing costs on those who emit greenhouse gases, economists say. But as French President Emmanuel Macron learnt over the past three weeks, implementing such taxes can be politically explosive.
On Tuesday (Dec 4), France delayed for six months a plan to raise already steep taxes on diesel fuel by 24 cents a gallon and gasoline by about 12 cents a gallon.
Mr Macron argued that the taxes were needed to curb climate change by weening motorists off petroleum products, but violent demonstrations in the streets of Paris and other French cities forced him to backtrack – at least for now.
“No tax is worth putting in danger the unity of the nation,” said Prime Minister Édouard Philippe, who was trotted out to announce the concession.
It was a setback for the French President, who has been trying to carry the torch of climate action in the wake of the Paris accords in December 2015. “When we talk about the actions of the nation in response to the challenges of climate change, we have to say that we have done little,” he said last week.
Mr Macron is hardly alone in his frustration. Leaders in the United States, Canada, Australia and elsewhere have found their carbon pricing efforts running into fierce opposition. But the French reversal was particularly disheartening for climate policy experts, since it came just as delegates from around the world were gathering in Katowice, Poland, for a major conference designed to advance climate measures.
“Like everywhere else, the question in France is how to find a way of combining ecology and equality,” said Mr Bruno Cautres, a researcher at the Paris Institute of Political Studies. “Citizens mostly see punitive public policies when it comes to the environment: taxes, more taxes and more taxes after that. No one has the solution, and we can only see the disaster that’s just occurred in France on this question.”
“Higher taxes on energy have always been a hard sell politically,” said Professor Gregory Mankiw, a Harvard University economics professor and advocate of carbon taxes. “The members of the American Economic Association are convinced of their virtue. But the median citizen is not.”
In the United States, whose energy-related taxes are among the lowest in the developed world, politicians, their constituents and their donors have repeatedly made that clear.
Former president Bill Clinton proposed a tax on the heat content of fuels as part of his first budget in 1993. Known as the BTU tax, for British thermal unit, it would have raised US$70 billion over five years while increasing gasoline prices no more than 7.5 cents a gallon.
But Mr Clinton was forced to retreat in the face of a rebellion in his own party. “I’m not going to vote for a BTU tax in committee or on the floor, ever, anywhere. Period. Exclamation point,” said then Democractic Senator David Boren, from Oklahoma.
The state of Washington has also tried – and failed twice – to win support for a carbon tax or carbon “fee”.
In 2016, the state’s voters rejected a ballot initiative that would have balanced a carbon tax with other tax cuts. This year, a wider coalition sought backing for an initiative that would have poured fee revenue into clean energy projects, job retraining and early retirement plans for affected workers. The fee would have started at US$15 (S$20.50) a tonne and gone up US$2 a tonne for 10 years. It, too, failed.
To be sure, some climate-conscious countries have adopted carbon taxes, including Chile, Spain, Ukraine and Ireland among others. Others have adopted cap-and-trade programmes that effectively put prices on carbon emissions.
Policy experts say that to some extent, the prospects of carbon taxes may depend on what happens to the money raised.
Using the revenues for deficit reduction, as was planned in France, is a no-no.
“Even in the best of times, carbon taxes must be carefully crafted to avoid political pitfalls,” said Mr Paul Bledsoe, a former Senate Finance Committee staffer and Clinton White House climate adviser. “In particular, much of the revenue raised must be recycled back to middle-income workers. Macron’s approach put the money towards deficit reduction, stoking already simmering class grievances.”
Last year, a group of economists and policy experts – including former Treasury secretaries James Baker and Lawrence Summers and former Secretary of State George Shultz – advocated a tax and dividend approach. It would feature a carbon tax of US$40 a tonne, affecting coal, oil and natural gas. The revenue would be used to pay dividends to households. Progressive tax rates would mean more money for lower- and middle-income earners.
“Because the revenue is rebated equally to everyone, most people will get more back than they pay in carbon taxes,” said Prof Mankiw, who is part of the group. “So if people understood the plan, and believed it would be carried out as written, it should be politically popular.”
So far the group, called the Climate Leadership Council, has not been able to generate much support from members of Congress.
But Canada is about to offer a test case.
Prime Minister Justin Trudeau has unveiled a “backstop” carbon tax of US$20 a tonne, to take effect in January, for the four Canadian provinces that don’t already have one.
Mr Trudeau was elected partly on a promise of this sort of measure, but it’s costing him more political capital than expected. Conservative premiers oppose the plan, which looks set to become an election issue.
Mr Trudeau’s policy, however, is designed to withstand criticism. About 90 per cent of the revenues from the backstop tax will be paid back to Canadians in the form of annual “climate action incentive” payments. Because of the progressive tax rates, about 70 per cent of Canadians will get back more than they paid. If they choose to be more energy efficient, they could save even more money.
The first cheques will arrive shortly before Canadian elections.
Climate policy doesn’t only suffer from lack of enthusiasm. It also arouses the ire of right-wing populist movements.
US President Donald Trump has said he does not believe climate science and announced that the United States would withdraw from the Paris climate accord. Many of the people most angry at Mr Macron’s tax come from right-wing rural areas. The German right-wing opposition party AfD has called climate change a hoax. And in Brazil, a new populist president has indicated he will develop, not preserve, the Amazon forests that pull carbon dioxide out of the air and pump out oxygen.
A member of Mr Trump’s beachhead transition team at the Energy Department took to Twitter to celebrate the collapse of Mr Macron’s fuel tax plan.
“It’s easy for politicians like #Macron to lecture us about #ClimateChange because the elites don’t notice the economic hit. Working class people do. Working class French people are ANGRY about unnecessarily higher fuel taxes that are only a #virtuesignal,” wrote Mr Thomas Pyle, president of the Institute for Energy Research – a group funded in the past by Koch Industries, the American Petroleum Institute and Exxon Mobil.
Prof Jason Bordoff, director of the Columbia University Centre on Global Energy Policy, said the celebration “would be reading too much into what’s happening in France”. That’s because Mr Macron was already seen as favouring the rich over the working class.
Mr Nicolas Hulot, a popular climate change activist and Mr Macron’s former environment minister, made national headlines in August when he resigned from Mr Macron’s Cabinet during a live radio broadcast. His reason: That the French government was more word than deed when it came to fighting climate change.
On the heels of the French government’s abrupt reversal on fuel taxes on Tuesday, Mr Hulot praised what he couched as a necessary political manoeuvre, albeit one that was not good for the environment.
“I welcome a necessary, inescapable, courageous and common-sense decision in the current context, which saddens everyone,” he said, speaking on France’s RTL radio. But, he added, there would likely be consequences of the popular uprisings against the diesel taxes, which the government has now suspended for six months. “All that is not good news for the climate,” he said.
The key, said Mr Hulot, is not to impose action on climate change in a technocratic way, in a way that ordinary people do not understand.
“The ecological challenge shouldn’t be against the French,” he said. “We need every Frenchwoman and Frenchman. On that, there is obviously a huge amount of misperceptions and misunderstandings.”