France’s violent, mass gilets jaunes (yellow vests) protests, featuring torched cars and smashed shop windows on the Champs-Élysées, were highly effective. They persuaded French President Emmanuel Macron to suspend the launch of new taxes on gasoline and diesel. The taxes were not just a blatant money grab; they were part of France’s efforts to try to meet the carbon-reduction goals agreed at the 2015 Paris climate conference.
Mr. Macron’s humbling U-turn early in the week injected a hard dose of reality into the United Nations climate conference now under way in Katowice, Poland. It showed that even wealthy countries whose governments believe in the science of climate change and who are well aware of the dire economic, environmental and social consequences of allowing the planet to heat up will have a devilish time cutting their greenhouse gas output.
The protesters considered the tax regressive, in that it would hit the working poor in the suburbs and rural areas, who depend on cars to get to work, harder than the urban rich. They were right. The tax, approved last year, had already raised gas prices by 7.6 euro cents (11.6 cents) a litre and diesel by 3.9 cents. The next hike, set for January, would have raised prices by another 2.9 cents and 6.5 cents, respectively. Among wealthy countries, France has the highest ratio of taxes to gross domestic product (see chart). The protesters had had enough of tax increases.
There is no doubt that high fuel taxes suppress demand, and hence carbon output. It is also true that poor countries use more fossil fuels per unit of economic output than wealthy areas. Slap more taxes on these fuels and resentment among the lower and middle classes naturally builds, to the point you get a populist-tinged, anti-establishment gilets jaunes moment. They rightfully ask: Why should we bear the brunt of reducing carbon output?
There is no easy solution to the rich-versus-poor countries divide, which is why the UN goal of limiting the average global temperature increase to 2 degrees over pre-industrial levels, and preferably by 1.5 degrees, will amount to humanity’s greatest challenge in the next few decades. But all hope is not lost. There are some noble, if small, attempts to use financial incentives to reduce carbon output without whacking the poor or putting carbon-intensive economies out of business.
In simple terms, they amount to a collective carrot-and-stick approach. The stick is ever higher carbon taxes; the carrot is recycling that tax revenue back to consumers, in effect making the tax revenue neutral. What you pay out, you get back in the form of tax credits or lower taxes elsewhere.
The idea has been around for a long time and finds a promising example in British Columbia’s carbon tax, whose fans include William Nordhaus, winner of this year’s Nobel Prize for economics, and the World Bank. The B.C. tax, introduced in 2008, was designed to be revenue neutral and was refreshingly free of loopholes. All fossil fuels used in transportation, electricity generation and heating were swept into the tax net.
At first, the tax on carbon emissions was set at $10 a tonne. It’s now $35 a tonne. According to the B.C. government’s literature, the tax has been effective in that emissions have come down without slamming the brakes on the economy. Between 2007 and 2015, the province’s real gross domestic product grew more than 17 per cent while net emissions fell by 4.7 per cent.
There is actually less success to B.C.’s tax than meets the eye. Emissions dropped fast in the tax’s early years, it appears, not so much because of its implementation but because of the recession that chewed its way through the economy after the 2008 financial crisis. In recent years, emissions reductions have been scant to nil. But ever higher carbon taxes – the level is due to reach $50 a tonne by 2021 – might put emissions on the downward trend again.
The other flaw is that the newish B.C. government, under Premier and NDP Leader John Horgan, has killed off the notion of revenue neutrality. The loot raised by the tax – about $1.2-billion a year – apparently proved too tempting to hand back to consumers in its entirety. The Horgan government is, for example, siphoning off some of that revenue to help fund a transit line between Surrey and Vancouver.
To give the carbon tax greater credibility, and set a genuine global example, Mr. Horgan should bring back revenue neutrality and raise the emissions price to the point where it really does put a big dent in carbon output. Still, as far as carbon-reduction experiments around the planet go, B.C.’s is among the better ones. It should be emulated and refined.
Canada is using other financial tools to try to bring down emissions in other areas. Michael Sabia, CEO of Caisse de dépôt et placement du Québec, recently told his portfolio bosses that the carbon footprint of their collective investments has to fall by 25 per cent by 2025 and, crucially, he has geared part of their pay to achieving that goal. Earlier this week, Shell, one of the supermajor oil companies, announced that it will set carbon emissions targets next year – its “ambition” is to halve their output by 2050 – and link them to the pay of some 1,200 executives.
In principle, carbon taxes that are revenue neutral are the way to go, because they spread the pain and rewards evenly and fairly, at least in theory. Fossil fuels are still too cheap not to be burned with alacrity. That will have to change. The trick is to avoid making the poor suffer more than the rich when prices go up.
Vive les taxes
France has the highest tax-to-GDP ratio
of any developed country.
2017 tax-to-GDP ratios (% of GDP)
of selected OECD countries
France
Den.
Swed.
Italy
Ger.
OECD
Britain
Canada
Japan
U.S.
S. Kor.
0
10
20
30
40
50%
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: oecd; bloomberg
Vive les taxes
France has the highest tax-to-GDP ratio of any developed country.
2017 tax-to-GDP ratios (% of GDP) of selected OECD countries
France
Den.
Sweden
Italy
Ger.
OECD
Britain
Canada
Japan
U.S.
S. Korea
0
10
20
30
40
50%
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: oecd; bloomberg
Vive les taxes
France has the highest tax-to-GDP ratio of any developed country.
2017 tax-to-GDP ratios (% of GDP) of selected OECD countries
France
Denmark
Sweden
Italy
Germany
OECD
Britain
Canada
Japan
U.S.
S. Korea
0
10
20
30
40
50%
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: oecd; bloomberg
Eric Reguly