Protests in France re­veal dan­gers of heap­ing car­bon-re­duc­tion costs on the poor

The Globe and Mail (Prairie Edition) - - NEWS - ERIC REGULY

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 car­bonre­duc­tion 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. 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 for each 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 prein­dus­trial 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 when 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, chief ex­ec­u­tive 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.

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.

VERONIQUE DE VIGUERIE/GETTY IM­AGES

Tear gas sur­rounds pro­test­ers as they clash with riot po­lice dur­ing a demon­stra­tion near the Arc de Tri­om­phe on Dec. 1 in Paris. Peo­ple were demon­strat­ing against new taxes on fuel that, they say, would un­fairly af­fect the work­ing poor.

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