Less Stick, More Carrot in the Carbon Tax Debate

Authors

• Farid Baddache

  Former Managing Director, BSR

The carbon tax debate is all over the French media these days—and this fascinating battle may hold lessons for how this debate will play out across the rest of Europe and more widely.

Recently, the former French Prime Minister Michel Rocard submitted his report for French carbon taxation to the Minister for Ecology. This initiative looks to augment the existing European Union cap-and-trade system to include households and businesses that aren’t already covered by it. Rocard’s proposal would levy an immediate tax of 32 Euros per ton of CO2 emitted through transportation and housing. This tax would increase by five percent each year, reaching 100 Euros in 2030. In response, some French consumer associations have accused Rocard of essentially robbing French households at gun point.

Despite the uproar, France is not really out in front of the pack on this debate—rather it’s simply keeping pace with growing expectations in the European market. Almost half (46 percent) of EU citizens want to see their government rework public taxation to promote environmentally friendly products. Finland defined an energy taxation system back in 1990. The U.K. set a Climate Change Levy on the use of energy in industry, commerce, and the public sector in 2001. Sweden even wants to develop a similar carbon tax system for all of Europe during its 2009 EU presidency.

So how to resolve the tension of so many people agreeing on the need for carbon inclusion but so loudly criticizing initiatives as soon as they occur? An answer lies in one of the basic principles of stakeholder engagement: create win-win solutions that generate value for all stakeholders.

Take for example Denmark’s Better Place initiative, which deploys a network of charge spots and switch stations to aggressively—and successfully—promote the use of electrical vehicles. Part of the success stems from the Danish government applying a principle of redistributive carbon tax—that is, citizens pay taxes on their cars only if they directly emit C02. As a result, consumers are given a powerful incentive to buy electric cars.

Similarly, the British government developed climate change agreements that allow eligible energy-intensive businesses to get 80 percent off the Climate Change Levy if they meet energy efficiency or carbon-saving targets.

So as the French debate rages on, it’s a reminder that we must develop climate change solutions that also provide clear, upfront value for all stakeholders. Otherwise it’s a lot of stick with very little carrot.