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French utilities could face new CO2 tax on top of ETS costs

30 Aug 2013 15:26:16 | edcm

Governments are stepping up national measures to reduce emissions, as France is the latest country to push for its policy to make polluters pay as the flagship EU emissions trading system (ETS) is in crisis. Lawmakers and analysts have warned that the back-loading proposal's failure to advance quickly may prompt national governments to take over climate and energy policy, further undermining the ETS.

Now French power generators could face a potential new carbon tax, despite an unofficial government position that companies that already pay for their pollution under the EU ETS would escape. This is because a previous carbon tax proposal that excluded EU ETS companies was rejected in the French supreme court, which said this would be discrimination.

On Thursday, Jean-Louis Schilansky, president of the energy commission of business lobby group MEDEF, said it was still unclear how the exemption for EU ETS companies would work.

Last week, energy minister Philippe Martin told a green party conference that the carbon tax, called a climate-energy contribution, would be introduced, but did not say when or how it would work.

A similar tax was proposed by France's previous president, Nicolas Sarkozy, in 2009, but was abandoned after the rejection in the Conseil Constitutionnel.

Legal obstacles

A new carbon tax would probably have to target all emitting sources including power generation, to avoid going the same way as the 2009 tax that targeted only diesel, said a French energy analyst on Friday.

"Now, coming back, how they are going to overcome that [legal taxation equality] obstacle? Frankly we don't know. If they do the same as Sarkozy, the Conseil Constitutionnel will say the same thing," said Schilansky, highlighting the legal difficulty of exempting companies that already pay for their carbon emissions according to EU regulations.

There would also be technical challenges. "It would still be very complicated how you would carve out the companies, what would apply [for this tax] and what would not," Schilansky said.

The French energy analyst said the tax could start at €7.00/tonne as early as 2014, but a French energy ministry spokeswoman was unwilling to provide an official figure.

The energy ministry is still discussing who would pay the tax, how much they would pay and when, the spokeswoman said last Friday.

The overall tax burden for companies should remain the same, however, because other taxes would be cut in its stead, she added. More details are likely to emerge in the budget bill to be published on 25 September.

Political obstacles

But sources thought it was likely that the tax proposal would die before it became law.

"Lobbying might just kill this reform," the energy analyst said.

It might be a hard sell to voters, if it appears that consumers shoulder some of the cost of this tax under the increase in consumer tariffs approved earlier this summer, he said (see EDEM 12 June 2013).

France supports a 40% emissions reduction target for 2030 and a 60% reduction by 2040 for the EU, says a report to the country's prime minister from the energy ministry, published earlier this month.

The impact of the tax would be limited by the fact that the country's power sector is dominated by EDF, which operates a large fleet of nuclear plants which have no emisisons.

In 2012, French power plants taking part in the EU ETS emitted 48m tonnes of CO2 equivalent (tCO2e), data from the European environment agency shows. This compares with 231m tCO2e for UK power generators, which already pay a top-up tax on the EU ETS price. Beatrice Mavroleon

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