Sarkozy launches green tax plan

French President Nicolas Sarkozy launched plans on Thursday for a carbon tax to encourage industry and households to cut energy consumption.

The levy, initially set at 17 euros (15 pounds) per tonne of carbon dioxide emissions, will translate into a rise in the price of fuel for cars, domestic heating and factories.

"The gravest challenge that we face is climate change ... Every one of our compatriots must feel concerned" Sarkozy said in a televised speech aimed at winning over a sceptical public.

In the works for months, the tax has caused a political furore in France, with disagreements within the ruling party and conflicting objections from opposition Greens and Socialists.

The Greens broadly agree with the principle but say the levy should be higher in order to have a meaningful impact, while the Socialists say it will hurt families already struggling to weather the worst economic downturn in over 15 years.

An opinion poll by Ifop for this week's Paris Match magazine found that 65 percent of people were against the tax.

The tax would be levied from January 1, 2010, Prime Minister Francois Fillon told TF1 television late on Thursday.

Critics accuse the government of seeking ways to increase its revenues in a year when fiscal income has plunged because of the recession, causing the budget deficit to balloon. 

Sarkozy rejected that criticism, pledging that the carbon levy would not increase the burden on households because the rise in fuel bills would be offset by cuts in income tax.

Those households too poor to pay income tax would receive "green cheques" from the state to compensate them for higher energy bills, he said. The tax cuts and green cheques will take into account the number of people in each household.

TOWN AND COUNTRY

"The aim of ecological fiscal policy is not to fill state coffers but to incite French people and companies to change their behaviour" Sarkozy said, adding that households that keep energy consumption low could end up better off financially.

The system will differentiate between people who live in urban areas with good public transport and those who live in rural areas and are more dependent on cars. The rural households will get more money back from the state, he said.

Labour unions said this sounded very complicated and they doubted that in reality households would be fully compensated.

The tax, calculated according to the volume of CO2 produced by particular types of fuel, will apply to oil, gas and coal.

A notable exception will be electricity. France produces 80 percent of its electricity from nuclear power plants that have low emissions, and Sarkozy said it would be counter-productive to tax power or to punish motorists switching to electric cars.

Green politicians reacted negatively to Sarkozy's speech. 

"The proposed carbon tax will not apply to electricity even though that also generates CO2 emissions. Furthermore, the rate proposed is too low to be a real incentive" said Yves Cochet of the Green Party.

The tax will rise over time, Sarkozy said, though he did not say by how much or by when.

Some Nordic countries introduced similar carbon taxes in the 1990s and have reported that the measures helped cut emissions without crippling growth. France will be the biggest European economy so far to adopt such a system.

Sarkozy said introducing the tax was a tough decision, but one that would allow France to negotiate from a position of strength at the Copenhagen conference on climate change in December by encouraging other countries to follow suit.