Background

France is an EU member state with a population of approximately 64 million people (OECD 2015). The industrial sector accounts for about 19.8 per cent of GDP, while services represent around 78.5 per cent of GDP (2013 figures). Nuclear energy plays a key role in France’s energy sector, accounting for 46 per cent of total energy supply and 78 per cent of the power mix in 2015. France is also dependent on imports of fossil fuels for domestic consumption – the share of fossil fuels in energy supply is 46.6 per cent of total primary energy supply (TPES), which is lower than most developed countries. The French government has set in motion significant reforms to support more secure, affordable and sustainable energy supplies and the green growth of its economy (IEA, 2016). In 2012, renewable energy sources accounted for only 9 per cent of total energy supply (OECD, 2015b). Overall, France has an extremely rich natural heritage with a wide variety of terrestrial and marine ecosystems. However, barely 0.7 per cent of metropolitan France is covered by protected areas in the strictest protection categories of the International Union for the Conservation of Nature classification. The country has limited fossil fuel and mineral resources, freshwater resources are moderate. Although, France has continued to make progress in decoupling environmental pressures from economic growth over the last ten years, intensive farming, urbanisation, land take and the expansion of transport infrastructure continue to have harmful effects on water resources, air pollution and ecosystems (OECD 2016). Finally, France plays an important role at the international level, tripling its official development assistance for biodiversity since 2007-08 and supporting the creation of the International Science-Policy Platform on Biodiversity and Ecosystem Services (OECD, 2016).

Overall Fiscal Profile

The country came through the 2007-2008 financial crisis without suffering too heavily. This economic performance is underpinned by a diversified industrial structure, a sound banking system and high, albeit uneven, educational attainment. However, potential output has slowed, partly because of the crisis; the fiscal situation is weak, with a chronic deficit, considerable government spending, correspondingly high taxes and rising public debt. The country’s GDP growth was only 2.5 per cent in 2004 and 2006. In 2014, public spending accounted for 57.3 per cent of GDP (Figure 7, Panel A, OECD 2015). The government has undertaken a series of welcome pro-growth structural reforms and has more in the pipeline. These reforms could help renew growth, thereby raising living standards and improving well-being. France’s GDP (US$ 38,800 PPP in 2013) is slightly below the OECD average (USD 39,200). GDP is expected to rise from 0.4 per cent in 2014 to 1.8 per cent in 2016. The unemployment rate (10.3 per cent in 2013) is below the Euro area average (12 per cent). Inflation has declined from 1 per cent in 2013 to 0.6 per cent in 2014 (EC, 2015).

Policy and Legal Framework for a Green Economy

Sustainable development gained momentum and political attention in France with the adoption of the first National Sustainable Development Strategy (NSDS) in 2003 and the appointment of an Inter-ministerial Delegate for Sustainable Development under the authority of the Prime Minister. The NSDS was revised in 2006 to bring it into line with the key challenges and objectives set out in the EU Sustainable Development Strategy. Since March 2005, Sustainable Development has been included in the French Constitution with the adoption of the Environmental Charter which ensures further efforts to include sustainable development in the work of all public institutions. To strengthen the integration of sustainable development in governmental actions, a dedicated Ministry has been established (SD-NETWORK data). In 2007, France organised a country-wide stakeholder consultation process, called the “Grenelle de l’Environnement”, to define the key areas of government policy on environment and sustainable development issues for the following five years. This consultation process resulted in 268 “Grenelle commitments” being integrated into the preparation of the NSDS for 2009-2013 (UN Data). In July 2016, France presented its sustainable development goals to the United Nations as one of 22 first-mover countries to implement the UN Agenda 2030 which was adopted in September 2015. As an EU member state, France has implemented the EU’s environmental acquis and adopted environmental objectives and related measures in various areas. As host of the United Nations’ 21st Conference of the Parties (COP21) in December 2015, France demonstrated its domestic and international leadership in guiding societal dialogue to address climate change. At the national level, France has developed an ambitious, integrated energy and climate policy framework to support an energy transition by 2030 and has adopted significant new policies, including carbon budgeting/pricing instruments, tax incentives and dedicated considerable public funding towards implementing these measures. The transformation of the energy system entails significant structural changes in the energy sector through improved energy efficiency and larger contributions from renewable energy sources (IEA 2016). To drive long-term decarbonisation of the economy and reduce greenhouse gas (GHG) emissions by 40 per cent by 2030, the Energy Transition for Green Growth Act acknowledges the need to accelerate actions in the transport, industry and buildings sectors, while maintaining a clean electricity mix. The role of renewable energy in the power mix is to be increased to 40 per cent by 2030 (from its current share of 16.5 per cent) and energy savings are to be accelerated. The government has also set an ambitious target of reducing the share of nuclear energy from 78 per cent of the power mix in 2015 to 50 per cent by 2025.

Fiscal Measures for a Green Economy

Since the late 1990s, France’s environmental policy has relied heavily on fiscal instruments to promote sustainable development and green growth. Fiscal instruments in place include deterrent measures such as taxes and charges or incentives such as tax credits. The vast majority of French environmental taxes (nine-tenths of total revenues) relate to the consumption of products (fuels, electricity, water), whose use has a negative impact on the environment. The Taxe générale sur les activités polluantes (TGAP) introduced in 1999 aims to implement the polluter-pays principle and provide a price signal to discourage polluting activities (IEEP 2014). According to Eurostat, revenues from environmental taxes represented around EUR 36 billion in 2010. These taxes are divided into four main categories: energy, transport, pollution, resources. As in other European countries, environmental taxes in France are predominantly in the field of energy. In 2015, the Internal Energy Consumption Tax (TICPE) contributed almost two-thirds (EUR 25 billion) of total revenues from environmental tax revenues. In 2014, a carbon component was introduced to the TICPE, varying the tariff applied on different fuels according to their level of CO2 emissions. The component rate is set at EUR7/tonne for 2014 and reached EUR30.5/tonne in 2017. The law provides for a gradual increase in the rate each year to reach EUR100/tonne in 2030 (Fiscalité environnementale 2017). Transport taxes accounted for 17 per cent of total revenues from environmental taxes (EUR6 billion) in 2015. They include, in particular, the tax on vehicle registration certificates (also known as the tax on car registrations) and the tax on company vehicles. A bonus-malus system was introduced in 2007 with the aim of stimulating purchases of low-emission vehicles. While encouraging more fuel efficient vehicles, the system has also led to increased purchases of vehicles and more drivers on the roads who are encouraged to travel more (Fiscalité environnementale 2017). Pollution and resource taxes are aimed at reducing pollutant releases to water or air and removing natural resources (excluding oil and natural gas). The proceeds from these taxes amounted to just over EUR 2 billion, accounting for only 6 per cent of environmental tax revenues in 2014. Pollution and water taxes account for the bulk of these taxes. The General Tax on Polluting Activities (TGAP) also falls into this category and covers waste and other pollutant emissions (Fiscalité environnementale 2017). In 2011, France carried out work to identify and analyse environmentally harmful subsidies. This included a report by the Committee to Evaluate Tax Expenditures and Social Security Contribution Exemptions which stressed the environmentally harmful effects of tax exemptions on certain uses of fossil fuels and a report by the Strategic Analysis Centre on government subsidies harmful to biodiversity (Sainteny, G., et al 2011). According to a report of the Strategic Analysis Centre, potential environmentally harmful subsidies, in the form of direct support and tax expenditures, drive the degradation of biodiversity in France in different areas (Centre d’analyse stratégique 2011):

• Destruction or deterioration of natural habitats: incentives for the acquisition of housing (social housing loan, social loan for rental-purchase)
• Public incentives related to economic activities of urban sprawl: regional economic contributions, public incentives to develop in rural zones, public incentives favouring quarries and extractive activities, public incentives to urban sprawl in the departments and local authorities overseas, the contribution of public funding to linear transport infrastructure.
• Over-exploitation of renewable natural resources: limited exemptions from the domestic consumption tax for approved volumes of biofuels, a reduced rate of the TGAP on the consumption of premium grade ethanol, petrol or diesel in proportion to the quantities of biofuels incorporated, aid to harvest insurance, support to milk in mountainous areas; European fisheries fund, financial instrument for fisheries policy (IFOP), deduction of 50 per cent from taxable profits of young fisherman, VAT exemption on seafood sold by fishermen etc.
• Pollution: reduced Domestic Consumption Tax on Energy Products, rate for low-sulphur content heavy fuel, VAT deductible at 100 per cent on diesel and E85 high-grade ethanol for company utility vehicles and at 80 per cent for company cars for individuals, heavy goods vehicles (Eurovignette).
• Climate change
• Introduction and spread of invasive alien species: direct subsidies, tax exemption, reduced VAT rates.

In 2012, France set up a Committee for environmental taxation (‘comité pour la fiscalité écologique’) as a permanent advisory and evaluation body responsible for developing opinions on proposed environmental taxation measures and Environmental Tax Reform related proposals (IEEP 2014).

Fossil Fuel Subsidy Reform

There are a number of different mechanisms and arrangements in place which support specific fuels and categories of end users. These mainly take the form of partial or full exemptions or refunds on VAT or excise duties on oil products. Examples include a reduced rate of excise duty on fuel used by taxis and specific types of machinery used in farming and construction, and a tax exemption on fuel used by fishing boats. In addition, grants are available under certain conditions for upgrading service stations and for converting old gasoline-fuelled vehicles to run on liquefied petroleum gas (LPG) (OECD 2013). According to OECD estimates, tax expenditures in support of fossil fuels amounted to €3.42 billion and budgetary support amounted to €3.1 million in France in 2014 (OECD, 2015a). While the total volume of the different forms of support is modest, it still represents a significant transfer for recipients. The majority of the support goes to consumers rather than producers given France’s limited fossil fuel production capacities (OECD, 2016). Along with Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, and Switzerland, France is a member of the Friends of Fossil Fuel Subsidy Reform (FFFSR) group. This is an informal group that was set up in June 2010 to support the commitments of G-20 and Asia-Pacific Economic Cooperation leaders to phase-out harmful and inefficient fossil fuel subsidies, and to foster political consensus and support on the role of fossil fuel subsidy reform at the international level. The FFFSR group has launched a Communiqué calling for action on fossil fuel subsidy reform as part of international efforts towards a sustainable, low-carbon economy (FFFSR, 2015).

References and additional reading

Centre d’analyse stratégique (2011), Approche économique de la biodiversité et des services liés aux écosystèmes, Public Incentives Harmful to Biodiversity, report of the commission chaired by Bernard Chevassus-au-Louis. http://greenfiscalpolicy.org/wp-content/uploads/2016/03/public_incentives_harmful_to_biodiversity_en13022015_bis.pdf EC (2010). Europe 2020. A European Strategy for Smart, Sustainable and Inclusive Growth. European Commission. http://ec.europa.eu/eu2020/pdf/COMPLET per cent20EN per cent20BARROSO per cent20 per cent20 per cent20007 per cent20- per cent20Europe per cent202020 per cent20- per cent20EN per cent20version.pdf EC (2015). European Economic Forecast – Winter 2015. European Commission. Retrieved from: http://ec.europa.eu/economy_finance/publications/european_economy/2015/pdf/ee1_en.pdf EC (2010). Research of the EU automotive industry into low-carbon vehicles and the role of public intervention. European Commission. http://ftp.jrc.es/EURdoc/JRC58727_TN.pdf Eunomia & IEEP (2014). Study on Environmental Fiscal Reform Potential in 14 EU Member States: Main Report. No 07.0201/2014/685390/ENV.D.2. Final Report to DG Environment of the European Commission. http://www.ieep.eu/assets/1722/Eunomia_EFR_Final_Report_MAIN_REPORT_V0.1.pdf EurOberservER (2015). The State of Renewable Energies in Europe. Edition 2014 – 14^th EurObserver Report. http://www.energies-renouvelables.org/observ-er/stat_baro/barobilan/barobilan14_EN.pdf FFFsR (2015). Fossil Fuel Subsidy Reform and the Communiqué. Briefing Note – July 2015. The Friends of Fossil Fuel Subsidy Reform. http://fffsr.org/wp-content/uploads/2015/07/ffrs-communique-briefing-note.pdf Fiscalité environnementale (2017). Fiscalité environnementale en France Un état des lieux. http://www.developpement-durable.gouv.fr/sites/default/files/Th%C3%A9ma%20-%20Fiscalit%C3%A9%20environnementale%20-%20Un%20%C3%A9tat%20des%20lieux.pdf Grantham Institute (2015). Climate Change Legislation in France. An Excerpt From: The 2015 Global Climate Legislation Study. A Review Of Climate Change Legislation In 99 Countries. The Grantham Research Institute on Climate Change and the Environment. http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/05/FRANCE.pdf IEA (2016). Energy Policies of IEA Countries – France 2013 Review. International Energy Agency. http://www.iea.org/publications/freepublications/publication/Energy_Policies_of_IEA_Countries_France_2016_Review.pdf IEEP (2013). Evaluation Of Environmental Tax Reforms: International Experiences. Institute for European Environmental Policy. http://www.ieep.eu/assets/1283/ETR_study_by_IEEP_for_the_Swiss_Government_-_Final_report_-_21_June_2013.pdf IEEP (2014). Environmental Tax Reform in Europe: Opportunities for the future. Institute for European Environmental Policy. http://www.ieep.eu/assets/1397/ETR_in_Europe_-_Final_report_of_IEEP_study_-_30_May_2014.pdf OECD (2014). Environmental Performance Reviews – France 2016. Organization for the Economic Co-operation and Development. http://www.keepeek.com/Digital-Asset-Management/oecd/environment/oecd-environmental-performance-reviews-france-2016_9789264252714-en#.WOo161WLTIU OECD (2013). Inventory of estimated budgetary support and tax expenditures for fossil fuels. Organisation for Economic Co-operation and Development. http://www.oecd.org/site/tadffss/fra.pdf OECD (2015). OECD Economic Surveys – France. Organization for the Economic Co-operation and Development.   http://www.oecd.org/eco/surveys/France-2015-overview.pdf OECD (2015a). Fossil Fuel Support Database. Organisation for the Economic Co-operation and Development. Retrieved from: http://stats.oecd.org/Index.aspx?DataSetCode=FFS_FRA OECD (2016) Fossil Fuels Support – France, OECD Inventory of Support Measures for Fossil Fuels, September 2016 Update Sainteny, G., et al (2011) Les aides publiques Dommageables à la biodiversité, Centre d’analyse stratégique, http://stats.oecd.org/Index.aspx?DataSetCode=FFS_AUS http://www.sd-network.eu/?k=country%20profiles&s=single%20country%20profile&country=France http://www.lse.ac.uk/GranthamInstitute/legislation/countries/France/ http://www.sd-network.eu/?k=country%20profiles&s=single%20country%20profile&country=France http://www.un.org/esa/dsd/dsd_aofw_ni/ni_pdfs/NationalReports/france/France_country_profile_English.pdf