Letter from France - L'environnement et l'économie

Alan Kirman, GREQAM Marseille, looks at the movement of environmental issues up the political agenda in France

The environment is back in a big way in France. You cannot open your newspaper nor hear a speech from the candidates for next year’s presidential election without being treated to a discourse on the future of the global environment. The growing awareness in France of this problem, can be judged from the relatively modest attention that was paid to the ‘Guesnerie Report’ on the environment commissioned for the Conseil d'Analyse Economique, something like the Council of Economic Advisors, three years ago, and the enormous amount of comment on the Stern Report this year. Without wishing to insult Nick Stern, nor to flatter Roger Guesnerie, remember we are talking about French reaction, I suspect that the difference was in large part due to a sort of phase transition in the awareness of the subject even in ‘La France profonde’. This view is comforted by the fact that Al Gore was invited to present his film, 'An Inconvenient Truth', to the French Parliament this year.

Some background
France was once the pariah of the ecologists since it generates 80 per cent of its electricity in nuclear power stations. In the advanced countries electricity generation accounts for a major part of C02 emission and France had a headstart thanks to its nuclear installations, producing only half the C02 emissions per capita of the U.K. This has been a significant problem for French ecologists who were previously bound together by their anti-nuclear stance. Many of those in this movement have started to revise their position, but the opposition to the installation of ITER the international fusion project at Cadarache, a few miles from my home, came from a handful of ‘irreductibles’ for whom the very word ‘nucléaire’ is still anathema. The dream of unlimited clean energy seems however, far off and the debate is now concentrated on much more immediate matters. There is a clear agreement amongst French scientists that the impact of manmade emissions is having a significant effect on the environment. However, there are still one or two who argue like Claude Allegre, a former minister of education, and a distinguished geologist, that we cannot be 100 per cent certain that the characteristics of the recent climatic time series owe anything to manmade emissions and therefore should wait before taking any measures. This for an economist seems curious, and one wonders what would have been the policy towards smoking if such an attitude had been adopted. Incidentally, smoking will be banned in bars and restaurants as from February 1st 2007, and the symbol of the Frenchman propped up at the bar with a megot between his lips will become history.

Proposed measures
The discussion at the national level has been concentrated around a few issues. There is general agreement that the sort of quantity controls used in the Kyoto agreements have to be achieved, at least in part, by fiscal measures. The proposal common to the presidential candidates who have declared themselves so far, is for a carbon tax, though whether this should be imposed on manufacturers or consumers is a subject for debate, and despite careful explanations as to the incidence of such a tax, the positions coincide with what one might expect from the right and the left. There is one voice against the carbon tax, and in particular against the increase in the price of petrol that it would engender and it is that of Arlette Laguiller an indefatigable candidate of the extreme left. Her argument is clear, ‘I represent the workers and do not care about “the general interest”. This tax will hurt my constituency and therefore I am against it’. This is a pure redistribution argument and, of course, without compensatory measures such as cheap public transport or a reform of the income tax schedules clearly has some weight.

Another line of argument has been that associated with the trading of pollution permits. The most basic economic reasoning would suggest that such a market should increase the efficiency of the allocation of pollution reductions. There are many reservations which include the correct accounting for externalities etc. but what is most interesting in the present context is that France has been criticised by the European Commission for giving too many permits in the initial allocation to big firms. This is a reflection of the weight of these firms in terms of their lobbying influence on the government, and indeed until the alarm was sounded, the proposition for next year was to increase the allocations! The way in which the initial allotments of permits should be attributed is one which has provoked a lot of debate amongst economists and game theorists but an analysis of what is happening in France cannot ignore the political aspect. In fact, French policy has been accused of destabilising the market for pollution permits.

Moving beyond the carbon tax and the market for permits many measures have been proposed to limit energy consumption. There are subsidies for the installation of ‘cleaner’ heating systems, for better insulating systems, allowances for buying cleaner cars, and many others. The French are not happy about the attention paid to the Toyota Prius since they point out that Renault which has a stranglehold on the market for cheap low pollution cars is not receiving the credit it deserves. Renault and Peugeot-Citroen produce two thirds of the cars that generate less than 120 grammes per kilometer on the European market. The two basic models from these two manufacturers produce 108 grammes as opposed to the 107 grammes of the Prius.

Another cause that has been seized upon by the current government and by the socialist candidate Segolène Royal, is that of the production of bio-ethanol fuel (E85). Pointing to the example of Brazil, it is argued that France could significantly reduce its greenhouse gas emissions by producing a fuel which is 85 per cent ethanol, and 15 per cent petrol. This fuel is essentially alcohol from vegetable sources and a little petrol. It seems more appealing than the more modest bio-diesel which consists of a small percentage of vegetable oils added to diesel fuel. It is this that is currently available at garages in France. The government has as its goals 5.75 per cent of fuel for cars from bio sources by 2008 and 7 per cent by 2010. Yet where is the reality? Bio-ethanol needs engines specifically designed for it and they make up 0.2 per cent of the current French car pool. Worse, the production of a litre of this fuel necessitates 0.8 litres of fossil oil. The reduction in greenhouse gases is three times more costly than that achieved by the use of bio-diesel. Why is this? The current production of ethanol is realised in France from grains and sugar beet, both cultivated with intensive use of fertilisers which are produced in an energy intensive way. Furthermore the distillation of the alcohol uses yet more energy. What then about Brasil? Brasil produces its ethanol essentially from sugar cane for which fertilisers are little used, and the energy necessary for the distillation process is obtained from burning the rest of the sugar cane. Although the agricultural sector in France has welcomed the arrival of bio-ethanol it is far from clear that it is in the general interest in the current circumstances.

The ‘pacte écologique’
A feature of the French political landscape this year has been the arrival of Nicolas Hulot, a popular television presenter and a potential ecological candidate for president. He has proposed an ecological pact which contains a certain number of propositions. The threat is that if the major party candidates do not accept his propositions he will, himself, stand. Surely this should not be a real menace. But for those who have forgotten it may be worth recalling the trauma of 2002. In 2002 Jean-Marie Le Pen, a candidate from the extreme right was runner up to Jacques Chirac in the first round and Lionel Jospin the socialist candidate was eliminated. The poor showing of Jospin was, in part at least, due to the presence of many candidates on the left, who split the vote. Already some of those who stood have withdrawn, but the threat of a popular ‘green’ candidate has raised all the old spectres. Segolène Royal has already agreed to sign the pact and it remains to be seen what Nicolas Sarkozy the probable candidate from the right will do.

The pacte écologique requires the nomination of a deputy prime minister who would be responsible for the environment, the imposition of a carbon tax which would increase over time until the emissions from cars were reduced to a quarter of their current levels, Subsidies to incite major consumers such as public canteens to use more organic and local products. Finally there is a promise to promote a continuing debate and to educate children to make them more conscious of environmental problems. The only sticking point here would seem to be the carbon tax with its distributional consequences. However, for the right, all this smacks of interventionism. The question for them is simply to what extent it is worth trying to recover some of the votes of the environmentally conscious, at the risk of antagonising car owners. We can probably safely exclude the hypothesis that longer term national interests might also play a role.

Local policies
An argument that has been put forward by a number of environmental economists is that in some countries such as the U.S., public opinion, especially at the local level has moved faster than that of policymakers at the national level. As a result, a number of local or state authorities have taken steps to reduce emissions within their territory. Indeed, they have sometimes gone beyond the reductions implied by Kyoto. In the US there are many well-known examples but in France the same phenomenon is appearing. Many major cities such as Paris and Marseille, are building tramways, buying buses which run on GPL, and using small local electric buses for short distance public transport. In Paris, there has been a lot of opposition to the new bus lanes which make it difficult to drive, and nobody has had the courage to say outright that this is precisely the intention. Urban economists have argued that the construction of tramways is not the most efficient way to ensure the rapid transport of large numbers of commuters and that their existence impedes the flow of traffic in city centres. Again, there are clearly different objective functions at work.

A more contentious issue has been the proposed introduction of a traffic tax in Paris. The basic facts are simple, 20 per cent of the inhabitants of Paris own cars and traffic accounts for 60 per cent of air pollution. Some economists have claimed that the current measures are inefficient, since obliging cars to move more slowly increases the pollution beyond the levels generated by more cars moving faster. However, independent assessments of the pollution levels on the major thoroughfares that have been modified, such as the Champs Elysées and the Boulevard de l’Hopital for example have shown a significant reduction in pollution over the last two years. This holds, even conditioning for the improvement in emissions due to the renewal of cars. An opinion poll taken by CSA-Nouvel Observateur in September showed that 52 per cent of Parisiens were in favour of the mayor’s policy to reduce traffic in Paris and only 22 per cent were against. More surprisingly the same poll taken in the neighbouring departments where the metro and buses are less accessible revealed that 50 per cent were for the policy and 33 per cent against.

The road tax could be implemented in a number of ways and the argument against such a tax has been mainly based on its regressive nature and distributive consequences. This argument has been analysed in depth by numerous economists, (see for example, Layard (1970), Foster (1974), Arnott et al. (1994), De Palma and Fontan (2001) and Raux and Souche (2004)). Safirova et al. (2003) studied this problem for Washington DC, which of course has many difference from Paris.

A recent paper by Glashant (2006) following up on an earlier study, (Glashant and Bureau (2004)), analysed the problem econometrically, using as a basis the estimated tax necessary in each of several scenarios necessary to achieve a 20 per cent reduction in traffic. His calculations are based on an estimated cost for the time lost in a journey and the payment of the tax. The value of the time varies with income. He found that introducing a fixed tax on each car journey in the whole of Paris, sufficient to achieve the 20 per cent reduction would increase the average cost of a journey by 0,80 € and that this was independent of the income of the motorist. The latter holds true for a tax covering the first 10 arrondissements but the cost per journey drops to 0,65 €. Thus these measures are, of course, regressive but do not engender any perverse redistribution..

An alternative proposal is to introduce a road tax for entry into Paris, this ‘cordon tax’ has two disadvantages, it increases the average cost of a journey to 0,95 € and the cost is significantly less for higher income motorists. Finally, a zone tax with an exemption of 90 per cent for residents as in London is also extremely favourable to high income motorists but clearly the average cost per journey is less. This should give pause for reflection to those on the left and might persuade the right to overcome its visceral dislike for such measures.

In this context it is worth mentioning the last argument raised by the socialist mayor of Paris which is that a tax might ‘isolate’, even more, those living in the suburbs and that public transport would have to be made more adequate to prevent this from happening.

All of this suggests that the arguments for a reduction in traffic is being taken very seriously at the local level and that, at least in Paris, public opinion is favourable to this evolution. Whether the basic motive is a reduction in congestion or a reduction in pollution remains a moot point.

Individual attitudes
Having seen how individual attitudes to traffic have developed, it is worth briefly looking at another area where a change in public opinion has occurred in France. A cornerstone of the arguments advanced by the ‘greens’ in France has been the need to encourage ‘organic’ farming. That this has caught on is evidenced by the sharp increase in the sales of products carrying the official label ‘AB’ for agriculture biologique. The Institut National de Recherche Agronomique in 2000 made a detailed review of the costs and benefits of more environmentally friendly agricultural practices (Bellon et al. (2000). Whilst noting the growing concern among consumers about the way in which their food is produced they observe that more extensive farming with the use of rotation rather than fertilisers, is necessarily more costly and less productive. However, as the externalities of current practices become more apparent, the estimates have been revised. In some regions of France such as Brittany, some communities have been obliged to supply bottled water to schools since the tap water no longer meets standard requirements. This is, in large part, due to poisoning of the water by chemicals used in agriculture. Leaving to one side the question as to wherher these areas should be farmed at all, two aspects of this problem are of interest. Firstly, the French unlike the Germans and the British, regard the ultimate guarantee of quality to be knowledge of the precise source of the food, (the name of the farm where a pig was raised, for example.) In other countries it suffices to know that the farms were subject to certain controls. The French Academy of Agriculture is proposing a study to understand the nature of this difference. For the economist what is fascinating is not so much the information required but the underlying preferences that generate the demand for the information. Those who have been convinced for the need for more psychology in economics will find food for thought here.

The second angle also stems from psychology. Consumers in France, with lower income levels have shown in surveys that they choose not to buy AB products even when priced at the same level as conventional products. They are apparently so convinced that AB products must be more costly to produce that they suspect that they must be of inferior quality if the price is the same. For the moment these problems are minor since AB products account for less than 5 per cent, the current target, of total production.

Conclusion
The French are becoming increasingly aware of environmental problems. The nature of the presidential contest is driving both of the principal candidates to trying to pick up support from any opinion group, in order eliminate minority candidates and thereby to avoid any risks of not making it into the next round. Thus, there is a lot of gesturing towards the greens and the environmental lobbies. Yet it is difficult to deny that this delicate voting game reflects an underlying reality and the various manifestations at the local level, where elections are much further off, show this. However, voting is a multi-dimensional problem and if the two candidates are sidling closer to each other on the environment they cannot help revealing their true colours on other issues.

When Johnny Halliday, a popular French singer announced the other day that he was taking up residence in Switzerland, for tax reasons, the reactions were instantaneous. Sarkozy, immediately announced that he understood the decision, since taxes are too high in France. Royal, on the other hand, admonished Halliday in Kennedy like tones suggesting that M. Halliday should not forget the investment that La France had made in him and that the poor would suffer from the loss of tax revenue from him ‘et de ceux comme lui’.

References

Arnott R., A de Palma, R. Lindsey (1994) ‘The welfare effects of congestion tolls with heterogeneous commuters’, Journal of Transport Economics and Policy, 28(2), pp 139-61

De Palma, A. et Fontan, C. (2001), ‘ Choix modal et valeurs du temps en Ile-de-France’, N°2001-20

Bellon S, Y. Gautronneau, G. Riba, I. Savini et B. Sylvander, (2000), ‘L'Agriculture Biologique et l’INRA : vers un Programme de Recherche’, Rapport INRA, Paris.

Foster, C., (1974), ‘The Regressiveness of Road Pricing’, International Journal of Transport Economics, Vol. 1, pp. 133-141.

Glachant M., (2006) ‘Un péage urbain à Paris ? Une évaluation des effets distributifs de quatre scénarios’, Mimeo, CERNA, Ecole des mines de Paris.

Glachant M., Bureau B (2004) ‘Economie des effets distributifs de la tarification de la circulation en zone urbaine’. Report for la Mission Interministérielle pour l'Effet de Serre, Paris.

Layard R. (1977) ‘The distributional effects of congestion taxes’, Economica, 44, pp 297-304.

Raux C., Souche M. (2004) ‘The acceptability of urban road pricing’, Journal of Transport Economics and Policy, 38(2), pp 191-216.

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