Study shows carbon tax helps cut emissions
When energy costs increase, emissions fall, according to 15 years of data from French firms
Paris — France’s recent industrial history may have a lesson for governments balancing climate change and economic demands: carbon taxes can cut greenhouse emissions and are not that bad for jobs either.
Analysing 15 years of data from 8,000 French manufacturers, economists at the Organisation for Economic Co-operation and Development (OECD) found that when energy costs rise 10%, emissions decline 9%. Crucially for governments worried about the political costs of climate policies, even if carbon taxes cause job losses at individual firms, there is no net loss of employment in the sector.
The findings could encourage policymakers struggling to balance growing demands from citizens to do more to tackle climate change with warnings that punitive taxes and regulation will hurt jobs and growth. In the EU, which has an ambitious carbon-neutral aim, some legislators want more analysis of the economic effects of that target.
The tensions were front and centre at the World Economic Forum (WEF) in January. US President Donald Trump blasted those warning of a climate crisis as “prophets of doom”, while German Chancellor Angela Merkel described it as a “matter of survival”.
But there is little doubt that dramatic measures can be a hard sell, and fallout through job losses or higher prices can lead to political blowback.
French President Emmanuel Macron knows this too well and has paid the price for getting the balance wrong. His 2018 fuel tax increase sparked the yellow vest protests over the cost of living, ultimately forcing him to backtrack and implement billions of euros of tax cuts to restore calm.
According to the OECD paper, the carbon tax on French industry at €45 per tonne of CO2 meant 2018 emissions were 5% lower compared with a no-tax scenario. The net effect on jobs is much smaller and may even be positive at about 0.8%, said Damien Dussaux, lead author the OECD working paper.
A further increase in carbon tax to €86 a tonne would reduce carbon emissions 8.7%, according to simulations.
“The analysis shows that the rise in energy prices triggers a reallocation of production and workers from energy-intensive to energy-efficient firms,” Dussaux said.
Still, he warned that governments should be better prepared to help workers, particularly as the damaging labour market effects are not evenly distributed.
“These transition costs are typically highly localised in regions specialised in polluting activities. They can also translate into potentially significant regional effects and thus political costs,” Dussaux said.