The carbon tax: a moral emergency?

We first heard about it in 1997, during the Kyoto protocol. It was called “Pigouvian”, after the economist Arthur Cecil Pigou, who proposed taxing externalities in 1920, to reduce greenhouse gas emissions, not by prohibition, but by incentive. How? By taxing consumption in proportion to the CO2 emissions it generates. When it was first introduced in 2014, the carbon tax amounted to 7 euros per ton of CO2. Now the price has risen to 44.6 euros per ton for fossil fuels (petroleum products, natural gas, and coal), in the mobility and residential sectors.

On a European scale, it’s the emission permit market that regulates the price of carbon for polluting industries (electricity production, steel industry, oil refineries, cement manufacturers, chemicals). On this market, the equilibrium price per ton of CO2 is currently around 100 euros per ton. In order to achieve carbon neutrality by 2050, the European Union (EU) plans to extend the market to the maritime sectors, road transportation, and building heating. From 2023, a carbon border adjustment mechanism (MACF) should also be put in place. This involves taxing imports from countries subject to more lax environmental regulations – the aim being to protect the competitiveness of European companies in order to clamp down on environmental pollution, but also to “encourage non-EU countries to increase their climate ambition,” according to the Parliament.

The carbon tax was one of the triggers of the Yellow Vests crisis in France, and embodies one of the biggest ethical dilemmas associated with environmental responsibility: people’s concern is now torn between the end of the month or the end of the world. This is also the title of the latest book published by economist Christian Gollier, a specialist on the subject and director of the Toulouse School of Economics.

Interview by Athenais Gagey.

When it comes to environmental policy, there are roughly three instruments: subsidies, prices, and standards. For years you have been a fervent defender of the carbon tax, which plays on prices. What’s the advantage of this tool over the other two?

Christian Gollier: Among the myriad of actions to reduce CO2 emissions, we need to identify those whose social benefit is greater than the social cost, to justify that they are socially desirable. We can immediately eliminate subsidies, which are unthinkable in the long term because they’re extremely costly. The transition to be put in place is of such magnitude that we cannot allow ourselves to be constrained by the empty coffers of the state.

The real debate is about the standards and the tax. In the 1960s and 1970s, the relative efficiencies of the market economy and the planned economy was called into question. It’s obvious that we could create a totally planned system, in which a “father of the people” would decide for individuals if they should take the plane or the train, public transport or the car, or how to set their thermostat. Historically, all planned economies have underperformed, not just in financial markets but also in the welfare of citizens. This doesn’t exclude the need to regulate the markets! The introduction of a carbon tax precisely means a strong state, capable of imposing a common rule that penalises polluters.

So the carbon tax is just a tool… by default?

The carbon tax is a tax that increases the price of carbon consumption – today it amounts to 44.6 euros per ton, or about ten cents per litre of gasoline. This tax covers the mobility and residential sectors in France. The gradual and anticipated increase in the price of carbon-based goods will reduce their consumption, profoundly modifying our lifestyles and production…