What future for energy taxation?

In the short term, the CPO recommends avoiding the use of taxation as a lever to offset rising fossil fuel prices. In the medium term, it advocates, in addition to the deployment of carbon markets, continuing their gradual adaptation to prevent them from inducing behaviors that slow decarbonization. Finally, in the long term, the energy transition will result in a loss of tax revenue, the financing of which must be anticipated to avoid a surge in public debt.

French energy taxation (€59,7 billion in 2024) is based primarily on excise duties on energy products (€39,5 billion) and VAT (€17,6 billion). It represents approximately 2% of GDP, placing France in line with the European Union average.

The effects of rising oil prices differ for VAT, which is based on sales value and therefore increases with prices, and for excise duty, which is based on quantities put into circulation and whose revenue decreases in the event of inflation due to the resulting drop in consumption. Assuming prices remain at their mid-May 2026 level and a demand response comparable to that observed during the previous shock of 2022-2023, these two effects would result in an increase in energy tax revenue limited to €0,2 billion annually. Past and international experience shows that adjustments to energy taxation are not fully reflected in consumption and investment, do not allow for targeting the most vulnerable households and businesses, and are difficult to reverse.

The use of excise duties for climate policy also has its limitations. Introduced in 2014, the carbon component aimed to integrate CO2 pricing into energy taxation, with a planned upward trajectory until 2030. This trajectory was halted in 2019 following social unrest. At the European level, emissions trading systems (ETS) are the preferred mechanisms for increasing carbon pricing without harming France's competitive position in the internal market.

By 2030, the deployment of the second European carbon market would lead, according to projections by the General Commission for Sustainable Development (CGDD) for the CPO, to an increase in fossil fuel prices. However, households' energy burden would decrease on average thanks to reduced energy consumption and the substitution of fuels with a less heavily taxed and cleaner energy source: electricity. Conversely, households that do not invest in improving the energy efficiency of their heating systems or electrifying their vehicles, or that do not reduce their consumption, would see their energy burden increase.

Even without specific measures, the energy transition will have significant long-term impacts on energy-related tax revenues. Using preliminary assumptions from the third national low-carbon strategy, the French Treasury Directorate General estimated – assuming constant tax rates – a decrease in net excise tax revenues on energy of €15 to €30 billion after the transition. Revenues from carbon markets cannot be considered a sustainable substitute for the expected decrease in energy taxes, as they are inherently destined to decline as the transition progresses.

In order to reconcile support for the energy transition, economic competitiveness, balance of public finances and social acceptability, the Council of Mandatory Levies formulates three orientations and seven recommendations.

In the short term, using fiscal policy to offset fluctuations in fossil fuel prices would be counterproductive. Cash flow assistance or, in the event of a prolonged shock, targeted and reversible fiscal measures to support the income of the most exposed businesses and professionals are more efficient.

In the medium term, it is necessary to reduce inconsistencies in the tax system so as not to hinder the energy transition. This requires bringing certain reduced rates into line with the European directive on energy taxation, revising standard excise tax rates to align diesel taxation with that of gasoline, increasing taxes on fossil fuels and decreasing taxes on electricity, as well as gradually reviewing tax expenditures that favor fossil fuels. However, to prevent a cumulative effect of measures that could weaken certain households and businesses, these provisions must be implemented progressively. Furthermore, the deployment of the second carbon market must be accompanied by investment aid that promotes the energy transition while reducing vulnerability to shocks in fossil fuel prices.

Implementing all these measures would still result in a loss of excise tax revenue on energy after the energy transition. To address this, public authorities will need to combine a reduction in public spending with the introduction of other taxes on energy use, on other products with relatively inelastic demand, or more broadly on consumption. An explicit and early decision-making process would create a predictable framework for households and businesses.

Illustrative image of the article via Depositphotos.com.