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More in Europe Look to Carbon Tax to Curb Emissions

By JAMES KANTER and MATTHEW SALTMARSHNew York Times, September 10, 2009

BRUSSELS — Economists have long seen a carbon tax as a good idea because of its simplicity: Polluters pay at a level that is set by decree.

But the idea never caught on widely in the United States or Europe, where governments jealously guard their autonomy on taxes. Industries lobbied for a market-based system called cap and trade instead, which they helped to design and from which some have profited handsomely.

Now, with only modest progress so far in meeting goals set for greenhouse gas reduction, the carbon tax may be making a comeback.

The French president, Nicolas Sarkozy, on Thursday unveiled details of a carbon tax that would raise the cost of driving a car or heating a home, all with the aim of encouraging conservation and thus reducing France's overall emissions. The tax was initially set at 17 euros, or $24.70, per ton of carbon dioxide emissions, Reuters reported.

The plan, widely previewed in recent weeks by French ministers, still must be debated by lawmakers. But it has already ignited a political storm among heavily taxed consumers, in a country that is just starting to emerge from recession. A poll released Tuesday by Ifop for Paris Match found that 65 percent of those surveyed did not favor the tax, while 55 percent doubted its usefulness in offsetting climate change. A vast majority, 84 percent, felt that it would add to the tax burden, especially on low-income households.

Environmentalists mostly are delighted. But even they warned that it would take time for a carbon tax to have an impact, as people would need to adapt their homes, buy more efficient cars, or even adopt practices like car-pooling. "Sure, people can drive more slowly or skip a journey in the near term," said Jos Dings, the director of Transport and Environment, an environmental campaign group based in Brussels. "But don't hold your breath for a huge reduction in fuel use the week after this is introduced."

Europe already operates its Emissions Trading System, which obliges large industries to buy permits to pollute if they emit more than they are allowed under an annual quota. The system affects companies that refine fuel for use in cars and heating systems, but the cost is hidden for the end user.

The carbon tax is different because it targets the consumption of fossil fuels by households and motorists directly. Trailblazers in Scandinavia say their taxes have been effective in lowering emissions.

Sweden has had such a tax in place since 1991, when the government imposed a tax equivalent to €28, or $41, for each ton of CO2 emitted. The Swedes currently levy a tax of €128 for each ton of CO2, although industries that are exposed to international competition are permitted to pay the tax at a lower rate.

Emissions in Sweden would be 20 percent higher without the tax, yet the economy has still grown by 44 percent since it was put in place, said Susanne Akerfeldt, a senior adviser on tax issues at the Ministry of Finance in Stockholm. "We have found that our carbon tax is entirely compatible with economic growth," she said.

Denmark instituted its carbon tax a year after Sweden, while Finland, Norway, Switzerland and parts of Canada use similar systems, she said.

Some experts said they believed other E.U. states were likely to follow France in implementing carbon taxes now because of the need to address deep budget deficits resulting from the economic downturn and stimulus spending. Such taxes may be less likely to increase unemployment or damage output than other means of raising revenue.

"Joining the fight to lower carbon emissions is one of the promising avenues to get a new tax through," said Christian Egenhofer, an energy expert at the Center for European Policy Studies, a think tank in Brussels.

The French tax, however, is supposed to be revenue-neutral — meaning that other taxes are supposed to be lowered.

Prime Minister François Fillon was quoted by French newspapers as telling lawmakers Tuesday that the tax would be progressive and would not increase the fiscal burden because there could be offsetting income tax credits or reductions, and lower local business tax. Those have yet to be specified, however, leading to criticism.

The skeptics include some of France's opposition Socialists, who worry about the effect on low-income families. The measure has even brought recriminations inside Mr. Sarkozy's ruling party, where deputies are concerned about a backlash at the ballot box.

"There is a risk that this will turn out to be just another tax," said Colette Lewiner, head of the energy practice at Capgemini in Paris. "Will it go back to people or will some of it be used to pay down the government deficit?"

Estimates have suggested that household heating costs would rise by €25 to €75 per year, depending on the type of building and method used.

Sweden has been using its current presidency of the E.U. to campaign for expanding the policy across the trade bloc. Yet Carl Bildt, the foreign minister of Sweden which holds the rotating presidency of the EU, acknowledged in an interview this week that there still were serious challenges.

"There would be significant resistance because different countries have different models," Mr. Bildt said at a symposium in Paris, alluding to the way that many countries — and Britain in particular — were unwilling to relinquish any sovereignty in tax matters.

David Miliband, the British foreign minister, also attending the same gathering, for now is declining to be drawn into whether London would seek to impose a similar levy.

"I'm watching the French debate with interest," he said.

Matthew Saltmarsh reported from Paris.


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