What We Can Learn About Carbon Taxes from France’s “Yellow Vests”
Prior to the outbreak of the French Revolution in 1789, Marie Antoinette — Queen of France — infamously remarked, “Let them eat cake,” upon hearing that her subjects had no bread. The quote has come to symbolize the disconnect between those in the top echelons of power and the ordinary people.
The recent “yellow vests” protests that have shaken France in recent days bring to mind Marie Antoinette’s words. Protesters — largely coming from rural areas and barely earning enough to get by — have accused Prime Minister Emmanuel Macron of disregarding their economic situation, calling him the “president of the rich.” The spark that lit the current protests was a gas tax hike that would disproportionately impact those outside the urban centers who rely heavily on cars to earn a living and conduct their lives.
As reported in the New York Times:
Some of the movement’s supporters say that if they were poorer, the government would help them with subsidies. But like the working poor in other Western countries, they are just above the poverty line, and unable to take advantage of government support.
Macron’s motivation for raising the gas tax is right, but the policy in its current form is all wrong because it fails to return the revenue collected directly to the people.
The motivation for raising the gas tax stems from the need to lower carbon emissions in line with the 2015 Paris agreement targets. As recent reports by both the IPCC and the US government emphasize, countries are not doing enough fast enough to effectively meet the emissions reductions needed to stave off the worst impacts of climate change. More needs to be done now.
But are taxes the right approach? The backlash in France now has some saying no. President Trump tweeted as much on Tuesday. But, while it might be tempting to draw the conclusion that carbon taxes are the wrong way to address climate change, that would be a tragic misunderstanding of the lessons we need to learn from France.
The problem does not reside with the gas tax — or carbon taxes more generally — but rather with the way Macron went about imposing the tax without taking into account social justice concerns alongside efforts to mitigate climate change.
The fact remains that climate change stems from the greatest market failure of all time. A market failure occurs when the hidden costs, or externalities, of a product are not fully accounted for — and this is exactly what happens with fossil fuel production and use. Think increased military expenditures to protect supply lines, increased healthcare costs to treat pollution-related illnesses, increased expenditures for aid and recovery after storms and wildfires intensified and made more frequent due to climate change.
Plus, as the US government’s recent National Climate Assessment details, we will be paying even more in the future if we do nothing today to deal with climate change. The costs will only rise if we do not correct this market failure:
Without substantial and sustained global mitigation and regional adaptation efforts, climate change is expected to cause growing losses to American infrastructure…and impede the rate of economic growth.
The central way to address this market failure is to move those costs back onto the balance sheet of today’s fossil fuel producers. The simplest way to do this is through a tax, or fee. But, of course, any new tax policy must be implemented in a way that ensures a just and equitable transition for workers and communities who rely on fossil fuels — like the “yellow vests” in France.
Perhaps the best market-based solution to accomplish these dual goals is a carbon fee and dividend plan. In this arrangement, a fee is placed on fossil fuels at their point sources. The revenue collected is then returned to households in the form of monthly dividend checks.
Recently, a group of bipartisan legislators in the US introduced a bill based on this model: The Energy Innovation and Carbon Dividend Act. This revenue-neutral bill would institute a carbon fee on fossil fuels with 100 percent of the collected fees returned to Americans in monthly dividends. The bill would reduce US carbon emissions by at least 40 percent within 12 years, helping the US meet reduction targets to prevent the worst impacts of climate change.
A revenue-neutral carbon fee and dividend policy — as spelled out in the Energy Innovation and Carbon Dividend Act — is exactly the right approach to help households as we transition away from fossil fuels to stave off the high costs of climate change.
Ultimately, the key lesson to learn from France’s “yellow vests” protests is precisely this:
Carbon tax policies are needed to deal with climate change, but such policies must be implemented in a just and equitable manner to ensure people like the “yellow vests” do not bear the brunt of those policies. The solution is to couple a carbon fee with a dividend program that would put money back in the pockets of working people.
