France to revise carbon tax as court rejects first version

The French Government's first job for 2010 is to revise its planned carbon emissions tax, raising fears among businesses they will be hurt by changes to the environmental measure.

President Nicolas Sarkozy made the tax a pillar of his 2010 budget, aiming to reduce emissions by taxing them and redistributing the revenue to reward households that cut carbon fuel consumption.

But while pursuing environmental reforms on the one hand, Sarkozy risks jeopardising another of his major priorities: making French businesses more competitive.

The tax, which the government has been forced to revise after a ruling on Wednesday, "will be a new blow for our exports and jobs", said Yvon Jacob, President of the Group of Industry Federations.

The constitutional court struck down the proposed tax just days before it was to kick in, ruling that it created inequalities by placing the burden of cuts on a minority of consumers.

The plan offered too many exemptions and would have allowed major polluters to dodge the tax, it ruled. This raised concerns among business leaders that efforts to even out the tax will harm their competitiveness.

The rejected version of the law had exempted around 1,000 industries such as the paper and chemicals sectors. These are already bound by European carbon quotas under which payments will be enforced from 2013.

The decision to reject it is "surprising", said Jean Pelin of the Chemical Industries' Union. "We don't see how businesses can at the same time be subject to the carbon tax while also having to pay for their emissions from 2013."

"Great attention must be paid to the problems of competitiveness of French industry," said Jean-Louis Schilansky of the French Petroleum Industry Union.

"Taxing carbon-emitting businesses which are already subject to a quota system will distort competition."

The ruling also dismayed sensitive sectors such as agriculture and transport.

"We will fight to the end not to pay this carbon tax," said Jean-Michel Lemetayer, President of the National Federation of Farmers' Unions.

A leader of the National Road Haulage Federation, Nicolas Paulissen, said he feared his sector would be "sacrificed on the altar of a hasty analysis of the [Constitutional] Council's conclusions".

Economy Minister Christine Lagarde responded on Thursday that these sectors would be spared, however, when the government takes measures to "correct" the text where it concerns industries that would have escaped the tax.

Industry Minister Christian Estrosi insisted the measure did not aim "to tax industry more heavily than it already is".

The ruling was welcomed by environmentalists and the left and seen as an embarrassing setback for Sarkozy, who had called it a "revolutionary" approach in the fight against climate change.

It came less than two weeks after world leaders failed to reach a climate binding deal at the Copenhagen summit.

Consumer groups had complained that the new tax would have hit rural households harder along with cash-strapped families who are unable to afford the energy-saving home renovations that could make a difference.

France aims to be the biggest economy to apply a direct carbon tax, mirroring measures that exist in Sweden, Denmark and Finland.

"Before the Copenhagen summit, we tried to be pioneers," said Jean Arthius, a centrist lawmaker and president of the Senate finance committee.

"But this is an issue that must be dealt on a supra-national level. We should have held talks with neighbouring countries."

The government said it will make a revamped proposal on January 20.

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