Bad climate policy fuels protests

It’s one thing to oppose bad climate change policy. It’s quite another to oppose climate change policy tout court. Unfortunately, these things are confused all the time. It happened in the commotion over Auckland’s regional fuel tax. It happened much more spectacularly in the revolt against President Emmanuel Macron in France. But by oversimplifying why people protest, we risk limiting our vision of what is politically possible.

The gilets jaunes (or yellow vest) protests in Paris are not simply a revolt against a fuel tax. This is much more complicated story.

For a start, Macron is wickedly unpopular. His election was supposed to mark a youthful break from establishment politics. But with his pre-political life in philosophy and finance, he was hardly an alternative to the elitist status quo, rather an entrenchment of it.

His ongoing fiscal reforms include tax breaks on wealth, which will benefit France’s top 1 per cent. His approach to governance is thoroughly top-down, embodied by his heroically arrogant leadership style. The fuel tax was the final straw: one more imposition by wealthy Paris on the struggling regions. There are strong affinities with other anti-establishment outbursts elsewhere, including the Brexit vote over the pond.

But the fuel tax also goes against good climate policy design. It is a regressive tax, meaning it places a greater burden on the poor than the rich. For low-income households, higher proportions of income are spent on goods and services, so the David Hall relative tax take is higher.

The gilets jaunes movement is dominated by tradespeople, contractors, artisans – all people who rely on vans and trucks for their work. The increased tax on diesel and petrol, by 6.5 and 3.9 cents a litre respectively, was going to test the already straining balance sheets of small and medium-sized businesses.

When people talk of a just transition, this is what they mean: how do we move to low-emissions economies in ways that don’t leave people behind? How do we ensure that people who have the least capacity to transition are not left in the lurch, but supported through the transitional process?

On this test, Macron has utterly failed. Tellingly, when Ghislain Coutard, the mechanic who started the yellow vest phenomenon, was asked if he supported environmental policy, he said: ‘‘Actually we would all love to drive with clean energy, but the government’s plan doesn’t stand up. That’s not how we’re going to achieve anything. We can’t even pay for our cars now, so it’s impossible to all buy electric cars or hybrids.’’

This is where well-designed climate policy is vital, a lesson that’s no less important for New Zealand. After discontent over fuel prices, driven more by global oil prices than taxes, Prime Minister Jacinda Ardern has ruled out further regional fuel taxes. This creates the space for more careful policy design in future.

I was in Paris last year to discuss environmental fiscal reform with the OECD. Its policy advisers stressed the importance of aligning instruments with objectives.

If the aim is to discourage emissions, by all means impose a fuel tax. But take into consideration its distributional effects. If it is regressive, acknowledge thisfact, then build it into tax policy design.

A climate dividend, for example, where the proceeds from carbon pricing are redistributed to lowincome households, ensures fuel taxes are fiscally neutral, or even progressive. This would strengthen public support for climate policy by alleviating the strain on the most vulnerable, or even leaving them better off.

However, if the aim is to generate revenue for transport infrastructure, then impose a congestion charge rather than a fuel tax, because it is the diversification of transport options that you are aiming for. Reduced emissions is a secondary effect, a co-benefit, but traffic congestion involves many more external costs, including accidents, lost leisure and work hours, air pollution, and degraded infrastructure.

Taxing carbon may encourage people to shift to electric cars, which is a good thing, but it doesn’t alleviate congestion, and it reinforces inequality because people who can’t afford electric cars can’t dodge the tax. A congestion charge, by contrast, will increase demand for transport alternatives, as well as the revenue to pay for them.

Macron needed only to board Paris’ enviable train network to hear the OECD’s advice. Hopefully, our Government has learned its lesson, that it isn’t only climate policy we need, but well-designed climate policy that takes care for its effects.

Macron’s fuel tax goes against good climate policy design.