French climate fund to be paid for by conventional thermal and nuclear generators

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25 September 2013, Nuclear, Solar, Wind

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The tax will come into effect from 2014. Although further details are planned to be released in late September, the tax will contribute to a "climate energy contribution fund" (in French: "contribution climat-energie," or CCE), which will be earmarked to fund new renewables and home insulation. In addition to the revenue raised from taxing petrol, diesel, coal, and natural gas, the nuclear sector will be held to contribute an as-yet unknown proportion of its profits. EDF, 84% owned by the state and operator of France's 58 nuclear reactors, has not yet commented on the announcement.

In 2014, a tonne of CO2 will be taxed EUR7, rising to EUR14.50/tonne in 2015 and EUR22 in 2016. The fund is expected to raise some EUR4bn by 2016, of which EUR1bn will go towards renewable energies on top of the EUR4bn already spent on renewable funding, and EUR1bn on housing insulation. Ambitiously, the government has said it hopes to support general business competitiveness with the funds raised by the CCE.

The CCE is in reality an extension of the idea of a carbon tax put forward four years ago by former President Nicolas Sarkozy. However, progress was slow due to the country's high reliance on diesel-powered cars. The French government is hoping to help ease public perception of the additional tax burden by underlining the neutrality for households in 2014.

Compensatory measures will be applied against the carbon tax, for example a EUR3,000 subsidy to low-income households that install insulation, as well as a lower VAT applied to home insulation works. Further, some sensitive industries will be exempt from the tax, including companies in transport and fishing. Industries already subject to carbon quotas will see no change.

Despite the moves, there is still great uncertainty as to whether France can reach President Francois Hollande's goal of a 30% reduction in conventional thermal generation by 2030, and much more will be needed to meet the goal of halving France's overall energy consumption by 2050. As the UK government can attest, enticing people to insulate their home is an uphill battle, and perhaps the most persuasive argument would be to let retail prices increase to reflect the cost of replacing 25% of generation capacity from nuclear to renewables instead of keeping price controls as at present.

The biggest challenge for France will be to make investing in generation capacity attractive to external investors. The money raised for the fund is unlikely to provide the estimated EUR120bn needed to finance the additional 56GW of renewable electricity forecast in Datamonitor's Power Analyzer Dashboard (EN00038-041). Given the scale of the investment it is unlikely it will be fully borne by EDF, as capital investment of that scale is beyond its means, even backed by the French state.

Source: MarketLine

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