France’s Yellow Vest Riots: Death Knell for a Carbon Tax?

By the time this blog post comes out, the “yellow vest” riots in France may be old news. But this fall, people took to the streets of France, seemingly angered by a proposed fuel tax. Opponents of carbon taxes were quick to declare victory: if France, a country with a fairly liberal (in the American sense of the word) populace, reacted with such anger to a proposed carbon tax, then clearly it is not a sound policy.

Not so fast. As any student of political science could tell you, context matters. France’s president, Emmanuel Macron, was fairly unpopular among certain groups before the tax was proposed. Part of this was class based: Macron is seen by some as the “president of the rich,” partially due to the repeal of a tax on the very wealthy, which only served to stoke already simmering class resentments. The proposed fuel tax would have hit low-income rural voters the hardest, a constituency that was already smarting under an oil tax that Macron had implemented earlier in the year. If Macron hadn’t already angered that constituency, would the riots have occurred? It’s hard to say. France, after all, is a party to the Paris accord, and Macron was elected in part based on his promise to do something about climate change.

Secondly, not all carbon taxes are created equal. The proposed policy in France took the shape of a fuel tax, one that would have increased the already high price that French consumers pay at the pump. A certain amount of an increase in fuel price is pretty much unavoidable. As greenhouse gases are formed by the combustion of fossil fuels, policies to reduce the use of those fuels is naturally going to impact, in one way or another, the users of those fuels. But the proper design of such a policy could help lessen their impact.

Carbon taxes can be placed at several different places in the “life” of a carbon atom. A tax on gasoline, which is what France proposed, is placed at the very end of the production and consumption process. It would affect low income and rural consumers more heavily, because those users consume disproportionately more gasoline. (Macron didn’t help his case by suggesting that rural folks carpool more often, displaying a serious misunderstanding of the lives of his rural constituents.)

Other forms of a carbon tax could be imposed (at least theoretically) during the extraction process: i.e., when the fossil fuel is extracted from the earth. In France, however, there is very little oil and natural gas production. Most of France’s energy comes from fossil fuel free nuclear power. While that means that France’s energy sector is much less carbon intensive than other countries’, it doesn’t leave them much wiggle room to reduce emissions elsewhere.

Thirdly, the way the revenue from the tax is “recycled” matters.  By recycling the revenue and returning it to households in some way, governments can reduce the regressivity of the carbon tax. Current proposals include reducing the payroll tax, reducing the capital gains tax, or simply returning it to households on a per person basis, much like the Alaskan Permanent Fund.  You can read more about revenue recycling in our earlier blog post.

The difficulty is that such schemes are complicated, and hard to explain to the general public. Add that complexity to Macron’s apparent communication problems, simmering class resentments, and increasing economic stress, and you have a problem. But don’t assume that all carbon taxes are politically infeasible. Like most other policies, they need to be designed – and communicated – effectively.

Image: Lionel Allorge [GFDL (http://www.gnu.org/copyleft/fdl.html), CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0) or FAL], from Wikimedia Commons