France’s 2017 Finance Bill: Towards a virtuous climate taxation?

Fiercely debated in the National Assembly, the 2017 Finance Bill includes unexpected provisions on energy-related issues. In particular, the modification of renewable electricity financing was not much discussed, although it is a key change.

The funding for RES support was structurally reoriented through an amendment submitted by the government. Since 2015, financial support for renewable energy sources (mainly PV and wind turbines) used to be managed by the earmarked “Energy Transition” account. In 2016, the account was financed by a tax on electricity consumption.

RES support is now financed by oil products consumption

The government decided to supply this account mainly with the domestic consumption tax for energetic products (TICPE), which applies essentially to oil products (6,9 billion euros out of the 17 billion euros nationally raised by this tax will supply the aforementioned Energy Transition account). A (small) additional funding of 1 million euros will be added from part of revenues raised by a domestic tax on coal. With this new funding system, the tax on electric consumption remains but its profit will be redirected towards the national budget. From 2017 onwards, RES will be financed by fossil fuels, and not by consumers anymore.

The implementation of the principles put forward in the Paris Agreement

This new way to support RES in France attests a significant shift in the national fiscal policy, for which UFE has called for many years: to support renewable energies by the carbon-intensive energies. In addition to the increase of the tax on CO2 emissions confirmed (30,5€/tCO2 in 2017, 39€/tCO2 in 2018, and 47,5€/tCO2 in 2019), this progression marks the French commitment to the energy transition, following the Paris Agreement.

Besides this accounting change, the government does not lighten the fiscal burden on electricity …

The political signal is clear, but is not ambitious enough: the domestic tax on final electricity consumption (TICFE, ex CSPE) is kept at 22,5 €/MWh. The revenues made are transferred into the national public budget, to a far greater extent than what is needed to fulfil the objective of public service in the electricity sector (tariff equilasation and social tariffs), which represented only 24% of the CSPE’s profit. In this regard, if the fiscal transfer is neutral for public revenues (the loss from the TICPE in the public budget is balanced with the surplus of the TIDFE), electricity remains the most heavily taxed heating energy (from 31 to 38€/MWh, as against from 8 to 15 €/MWh for other heating energies). This message is rather incoherent since electricity is a low-carbon energy that provides jobs not susceptible to relocation.

… and makes the measure structurally unpredictable.

In the long run, although the latest increase of the tax TICFE was justified by the financing of several public measures (among which the support for RES, the tariff equalisation and the social tariffs), the transfer of the TICFE’s profit into the public budget makes the new pricing system independent from the evolution of the charges previously identified. In a tight budgetary context, the TICFE could be revised upwards without specific explanations (although its level used to be discussed in the French National Regulatory Authority CRE before), thus worsening the fiscal burden on electricity.
By financing the support for RES by a tax on oil products consumption when its price is particularly low, the price increase is rather painless for the consumer. But this context might change. If prices were to increase rather significantly, the government would have to balance the positive climate impact of this organisation with the purchasing power of oil products consumers. That is why it is essential to target energy efficiency measures towards oil consumption, as UFE has underlined in its studies.
In the end, UFE welcomes the establishment of this new fiscal system (make high carbon-footprint energies pay for the development of RES), in tune with the Paris Agreements. However, it introduces uncertainties regarding the durability of the RES funding because of the oil pricing volatility, which could increase political tension in a future government. Moreover, this leaves uncertainties regarding the future cost of an energy which was until then awarded by the consumers for its price predictability.