Chapter 3. Towards green growth1

3.1. Overview

Fiscal pressure has increased considerably since 2009, exceeding 45% of GDP in 2014 and ranking France second among OECD members (OECD, 2015b). The French tax system is highly complex and contains a large number of deductions, credits and exemptions. High social security contributions mean that the tax structure weighs heavily on labour and employers, factors which do not create conditions favourable to investment and innovation. Local authority tax revenues rose from 10% in 2000 to 13% in 2013, slightly higher than the OECD average of 12%.

Considerable progress has been made in environmental taxation. In 2015, alongside the COP21 climate conference, the French President, with several other heads of state, the World Bank, the IMF, the OECD, business leaders and civil society partners from all over the world, launched a Carbon Pricing Leadership Coalition; the French government gave itself five years to bring the taxation of diesel and petrol into line. A carbon component was incorporated into fossil fuel taxation in 2014 and the 2015 Supplementary Budget Act2 confirmed that it would gradually rise until 2017. The scope of the general tax on polluting activities has been extended and certain rates have been increased. The annual tax on company vehicles has been modified to take account of CO₂ and other pollutants emitted by vehicles, and the reduced rate of VAT on fertilisers and pesticides has been eliminated. This progress is due in particular to the work of the Environmental Taxation Committee set up in 2012 (Box 3.1).

However, environmental taxation remains relatively light, tax rates do not reflect the cost of environmental damage and the many instances of preferential tax treatment, especially for diesel, continue to send contradictory price signals. In relation to the Grenelle objectives, the introduction of the climate-energy contribution3 marks an important step forward which needs to be locked in and strengthened. In contrast, the scrapping of the HGV ecotax4 clearly contradicts the polluter-pays principle, failing to cover the external cost, including the environmental cost, of using road infrastructure.

Over the period 2000-14, environment-related tax revenue fell as a proportion of both GDP and the total tax take. It amounted to EUR 42 billion in 2014, representing 2.0% of GDP and 4.4% of total tax revenue, compared with 2.2% and 5.2% respectively in 2000. These are among the lowest ratios in OECD Europe (Annex 3.A1). By volume, revenue fell until 2009 and has risen since then, returning in 2014 to a slightly higher level than in 2000 (Figure 3.1). Over the period as a whole, the rise in electricity-related revenue offset the fall in revenue from fuel taxation. The share of transport-related taxes (excluding fuel) is relatively low in comparison with other OECD Europe countries, even though the number of vehicles in France is higher (Annex 3.A1).

Figure 3.1. The environmental tax burden in the economy is declining

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Taxing employment heavily but polluting activities lightly, combined with high unemployment and a large budget deficit, are all arguments in favour of green tax reform. Increasing environmental taxes, especially vehicle and diesel taxes, and reducing environmentally harmful subsidies could generate up to EUR 48 billion (1.9% of GDP) in tax revenue in 2025, which would make it possible to ease the tax burden on employment (European Commission, 2013; European Commission, 2015; Hogg et al., 2014). Some of the revenue could be used to compensate the most vulnerable people and sectors in order to make such measures more socially acceptable.

3.2. Taxes on energy products

In France as in all OECD countries, the bulk of environmental tax revenue derives from energy products. They accounted for 78% of revenue in 2014, more than the OECD average of 69%. Revenue from taxes on petroleum products have fallen significantly since 2000 due to lower consumption, lower real tax rates and a shift from petrol to diesel vehicles, diesel being more lightly taxed. As road fuel tax rates are not indexed to inflation, both their incentive power and revenues have diminished (Figures 3.1,  3.2). Hogg et al. (2014) estimated the resulting loss at EUR 1.3 billion per year for petrol and EUR 1.6 billion for diesel. In contrast, revenue from electricity taxes has increased as a result of rising consumption and higher tax, especially the tax contribution to public service charges for electricity, designed to finance support for renewable energies (Chapter 4). Revenue from electricity taxes accounted for 25% of energy excise revenue in 2014, compared with 6% in 2000.

In 2013, the implicit tax rate on energy5 was slightly higher than the European average (Eurostat, 2015). However, it reflected considerable variations according to types of fuel and users. Energy taxation at present only partially reflects environmental externalities, especially those related to climate change and atmospheric pollution (OECD, 2015c). After unsuccessful attempts in 2000 and 2009,6 the 2014 Budget Act introduced a climate-energy contribution into taxes on energy products in order to take account of the impact on the greenhouse effect of emissions caused by burning them. Businesses covered by the EU Emissions Trading Scheme (EU ETS) are exempt from domestic consumption taxes in order to prevent dual taxation. The new climate-energy component in domestic consumption tax rates, proportionate to the carbon content of the product concerned, was set at EUR 7 per tonne of CO₂ in 2014, rising to EUR 14.5 in 2015, EUR 22 in 2016 and EUR 30.5 in 2017. It was introduced at a constant rate: for 2014, part of the existing tax was deemed the carbon component. The climate-energy contribution could generate revenue of EUR 4 billion in 2016 and lead to a saving of 3 million tonnes of CO₂ in road transport and building over the period to 2017 (Ministry of Finance and Public Accounts, 2013).

The climate-energy contribution marks an important step towards the harmonisation of carbon prices. However, the effective average rate of carbon taxation remains relatively low and there are many exceptions which limit its scope (Section 4.1). To lock in the contribution and reach a level compatible with French and European commitments on reducing greenhouse gas emissions, the Energy Transition Act aims for a value of EUR 56 per tonne of carbon in 2020 and EUR 100 in 2030 (Quinet, 2009). The value of EUR 30.5 set in the 2015 Supplementary Budget Act is consistent with that goal. Future Budget Acts will have to follow suit. As in other OECD countries, proposals to increase energy taxes have been disputed on competitiveness grounds and because of their potentially regressive effect. However, research by Arlinghaus (2015) has not shown that carbon taxes have any significant effect on competitiveness. In addition, recent studies relativise the regressive aspect of environmental taxation by taking account of agents’ entire lifecycle (Sterner, 2012) or general equilibrium effects (Dissou and Siddiqui, 2014).

As in most other OECD countries, road fuel taxation clearly favours diesel, which is unjustified from an environmental standpoint since diesel has a higher carbon content and emits more local pollutants (fine particles, NO₂) than petrol (Harding, 2014a) (Figures 3.2). Diesel vehicles also benefit from preferential tax treatment (Sections 4.1, 4.2). These advantages have had a significant effect on the vehicle fleet, where the proportion of private diesel cars jumped from 35% in 2000 to 62% in 2014 (Chapter 1). France has more than doubled its diesel imports in order to meet demand, reducing its energy autonomy. The health impact of air pollution, of which transport is one of the main sources, has been estimated at over EUR 50 billion, or 2.5% of GDP (Chapter 1). The 2015 Budget and Supplementary Budget Acts reduced the tax differential between diesel and petrol by nearly six cents per litre between 2014 and 2017. Nonetheless, in 2015 the difference (15.6 cents) remained greater than the EU average. While the gradual rise in the carbon component of domestic consumption taxes introduced by the Energy Transition Act should help to narrow the gap, the government’s recent commitment to achieve alignment sooner should be encouraged and continued. The diesel/petrol catch-up scenarios prepared by the Environmental Taxation Committee show positive overall socio-economic outcomes over the period 2014-30 as well as environmental gains in terms of CO₂ and local pollution of EUR 1 to 1.9 billion in relation to the 2013 benchmark (CFE, 2013a).

Figure 3.2. Road fuel taxation favours diesel

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3.3. Transport taxes and charges

Transport tax revenue in 2014 represented 15% of all proceeds from environmental taxes, the same proportion as in 2000 and relatively small compared with other OECD countries (Annex 3.A1). Revenue by volume has barely increased since 2000, with the increase in vehicle licensing charges having offset the decrease in revenue from the company vehicle tax.

3.4. Other environmental taxes and charges

4.1. Tax breaks for energy products

Since state aid for Charbonnages de France, a publicly owned coal producer, was removed in 2007, support measures for fossil fuels have mainly consisted of tax expenditures17 related to consumption (OECD, 2013a, OECD, 2015d). These expenditures were estimated at EUR 6.2 billion18 in 2015, equivalent to 20% of energy tax revenues and 0.3 % of GDP19 (Table 3.1; Ministry of Finance and Public Accounts, 2014b). Overall, two thirds are related to the exemption of fuels used for transport (mainly commercial air transport and road haulage) from domestic consumption tax, the other one third being related to sectoral uses (non-road diesel fuel used by construction and agricultural plant).

Apart from the burden they place on public finances, these tax exemptions send contradictory price signals and reduce incentives to use less energy, with adverse consequences on greenhouse gas emissions and air pollution. Although some tax breaks may be justified (for example in order to avoid double taxation of air transport activities covered by the EU ETS since 2012), others, like those for road haulage and the agricultural sector, are used to make up for a lack of competitiveness and ought to be reviewed (Guillaume, 2011).

The allowance paid to low-income households from 2005 to help them with their domestic heating oil bills was scrapped in 2009. The 2014 Budget Act eliminated a number of environmentally harmful subsidies, including the exemption from domestic consumption tax of natural gas, coal, lignite and coke for private use, including collective use. Likewise, it gradually reduced domestic consumption tax exemptions for biofuels to zero in 2016. The scheme had been criticised for overlapping with the general tax on polluting activities, more effective in pursuing the same goal,20 and for disputed environmental outcomes in terms of greenhouse gas emissions and biodiversity (Cour des Comptes, 2012).

Efforts to reduce environmentally harmful subsidies should be continued and facilitated by better provision of information. For example, the list of tax expenditures attached to the budget bill could include the reduced rate of consumption tax on diesel, as is the case for LPG. The tax shortfall due to the rate differential between diesel and petrol was estimated at EUR 7 to 8 billion21 in 2011 (Cour des Comptes, 2013). The deductibility of VAT on fuel for business use could also be included. Firms can deduct most of the VAT on the diesel and E85 super ethanol they use (80% for cars, 100% for vans) but VAT on petrol cannot be recovered, whatever the type of vehicle. It was a decisive factor behind the shift to diesel in company vehicle fleets. Although France cannot remove existing deductions without infringing EU law, introducing an equivalent deduction for petrol would ensure that the fuels were treated equally.

4.2. Company cars

Income tax breaks granted to employees for the use of a company car influence the composition of the vehicle fleet and the intensity of vehicle usage (Harding, 2014b). Employees get two types of benefit from a company car: the benefit of not paying or paying lower fixed costs (purchase, insurance, registration, etc.) and variable costs (fuel, repairs, maintenance) (Harding, 2014b). Lower fixed costs may encourage employees to choose a larger car, while lower variable costs may encourage them to drive more at zero marginal cost. These benefits may increase the number of households with more than one car and hence the size of the vehicle fleet. All these factors have substantial negative impacts on the environment and on society (Harding, 2014b; Roy, 2014).

A study of 27 OECD countries showed that no tax system captures all the benefits enjoyed by employees with a company car and that on average countries tax only half these benefits in kind. France captures only a little over 20% of benefits, the fourth lowest rate after Mexico, Hungary and Portugal. That represents a tax revenue shortfall of EUR 5 billion a year, or the equivalent of an annual subsidy of EUR 2,057 per company car compared with an average of EUR 1,600 in the other countries studied (Harding, 2014b). That is mainly due to the fact that taxation of the benefit in kind does not take account of the distance driven by the employee.

5.1. Environment-related measures in fiscal stimulus plans

In response to the economic crisis, France introduced a EUR 27 billion stimulus plan22 for 2009 and 2010 representing 1.4% of GDP, on a modest scale in comparison with other OECD countries due to a worse initial budget situation (Table 3.2, Cour des Comptes, 2010). The plan promoted investment in sustainable means of transport, energy-efficient building renovation and clean technologies as transition measures to green growth (Présidence de la République, 2008). The environmental measures contained in the stimulus plan are hard to tell apart from those introduced previously, such as investment in transport infrastructure, and those which emerged from the Grenelle Forum, under discussion in parliament at the same time.23 In all events, the plan speeded up their implementation. According to estimates, environmental measures represented between 8% and 20% of the stimulus plan, or between 0.1% and 0.3% of GDP (Pollitt, 2011). They mainly targeted the sectors hardest hit by the crisis, especially carmaking and building.

One of the plan’s flagship measures was the creation of a scrapping premium to support the car industry. In addition to the bonus already in place, a EUR 1 000 premium was paid for any acquisition of a vehicle emitting 160 g CO₂/km24 at most, when a vehicle more than 10 years old was retired at the same time. The measure was extended in 2010 to prevent a sudden collapse in sales but the amount was reduced to EUR 700 until mid-2010, then EUR 500 until the end of 2010. The scheme proved effective in sustaining demand and growth. The scrapping premium and similar programmes introduced in other European countries from which the French market benefited are reckoned to have accounted for 69% of French GDP growth in the second and third quarters of 2009 (Cour des Comptes, 2010).

However, the medium- and long-term economic and environmental advantages of such programmes are limited. They encourage consumers to bring forward their vehicle purchases, which are then followed by a collapse of sales when the scheme ends, as happened in 2010. By distorting the market, they are likely to prevent the necessary structural adjustments and cause discrimination between sectors of activity and between consumers, for example to the detriment of low-income households which do not have the means to buy new cars. From an environmental standpoint, they are not cost-efficient. It has been estimated that the benefits of the scrapping premium in terms of improved safety and the avoidance of CO₂ and NO_x emissions represented less than half the cost of the scrapped vehicles (ITF, 2011). That is due to the premium’s effect of increasing the fleet of diesel vehicles. The scheme could have been made more environmentally effective by targeting a reduction in NO_x as well as CO₂ emissions. Overall, the scrapping premium cost more than EUR 1 billion rather than the EUR 220 million initially planned.

A systematic cost-benefit analysis incorporating environmental externalities would help to rationalise public spending. Although the 2012 Public Finances Planning Act requires a prior socio-economic assessment to be performed for all capital spending projects undertaken by central government and state institutions, limited use is made of them (Quinet, 2013). Of the 299 investment projects identified by the General Investment Commission in 2014, only 194 had been the subject of a sometimes very cursory or incomplete assessment. Of those, 108 had been the subject of a socio-economic assessment, 108 of a financial assessment, 75 of an evaluation of induced costs and 52 of an environmental assessment (Cour des Comptes, 2015d). Fewer than 30% of urban areas with more than 10 000 inhabitants have introduced a system for assessing their capital spending projects.

5.2. Environment management expenditure

Expenditure25 on environmental protection26 rose from 1.9% to 2.2% of GDP between 2000 and 2013, a relatively high figure in comparison with other European countries. Although all sectors have contributed to this growth, public spending has remained flat since 2008 while business and household expenditure has risen steadily. The increase was mainly due to higher current expenditure, especially on waste management, while capital expenditure fell in the second half of the 2000s, especially for wastewater treatment (Figure 3.3) (CGDD, 2015a). Waste management and wastewater treatment remain the largest items of expenditure, even though general administration, soil decontamination and research and development have taken an increasing share since 2000. In 2013, current expenditure accounted for two thirds of spending on environmental protection and capital expenditure for one third.

Figure 3.3. Spending on environmental protection has increased, especially for waste management

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Waste management has become the leading item of expenditure on environmental protection, accounting for 35% of the total in 2013 (Figure 3.3) (CGDD, 2015a). Whereas the amount of waste generated per inhabitant has remained relatively stable in recent years, the rise in expenditure is due partly to improved management methods (especially the widespread use of selective collection) but also to insufficient control over collection and processing costs (Cour des Comptes, 2014b; Section 3.4). A cost accounting system for waste and cost tracking indicators in municipalities’ annual waste management reports should be introduced across the board, as required by the Energy Transition Act. ADEME, the French environment and energy management agency, has developed a reference framework for waste management costs and is setting up a national observatory which should encourage transparency and control over costs.

5.3. Investment in renewable energies and energy efficiency

Investment in renewable energies amounted to EUR 6.2 billion in 2013, over 30% more than in 2006 but nearly 60% lower than the peak in 2010. Feed-in tariffs and the sustainable development tax credit are the main measures to support power from renewable sources and energy efficiency (Chapter 4). Poor calibration and instability over time have greatly affected the level of investment (Figure 3.4; Chapter 4).

Figure 3.4. Investment is affected by the instability of measures to support renewable energies

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5.4. Investment in sustainable transport modes

Investment in transport infrastructure represented 1.1% of GDP in 2013, considerably more than the OECD average of 0.8%. Almost half was for roads, 30% for the mainline railway network, 15% for urban public transport and 6% for other infrastructure (CGDD, 2015b). The Grenelle I Act stimulated substantial investment in the railway network and urban public transport in addition to the amounts already scheduled in the national railway network upgrade plan for 2006-2010 and the planning contracts between central government and the regions (ADEME, 2014a). Investment in the high-speed rail network more than quadrupled between 2010 and 2013, while investment in urban public transport increased by over 50%. However, the Grenelle targets for modal shift are not being met and insufficient investment in the conventional railway network could threaten its long-term future (Commission sur l’Avenir des Trains d’Équilibre du Territoire, 2015).

The 2011 National Transport Infrastructure Plan which emerged from the Grenelle process called for EUR 245 billion of investment over 25 years (excluding the Grand Paris Express project and public transport), with 71% being earmarked for the railways (DGITM, 2011). Faced with such a large amount, in 2013 the government set up the Mobility 21 commission to assign priorities to targets and projects (Commission Mobilité 21, 2013). The commission’s report emphasises the need to modernise the network and deal with sensitive rail hubs before developing expensive new high-speed lines of arguable socio-economic value. It points out that the French transport infrastructure funding agency AFITF does not have sufficient resources to fund new expenditure in addition to the four high-speed lines27 already under construction.

Railway debt is rising despite substantial public subsidy and could exceed EUR 60 billion in 2025,28 compared with EUR 32.5 billion in 2010. The allocation of revenue from higher diesel taxes to AFITF in 2015 and 2016 is not a sufficient long-term measure to offset the revenue foregone by abandoning the ecotax (Cour des Comptes, 2014a). Nevertheless, the government opted for the Mobility 21 commission’s most ambitious scenario, which calls for EUR 30 billion over the period to 2030. Although priority is given to improving existing networks,29 recent commitments to new high-speed lines raise questions over the consideration given to socio-economic assessments in decision-taking processes (Cour des Comptes, 2014a).

Transport infrastructure pricing does not reflect the costs of use or traffic-related externalities such as congestion, pollution, noise and the greenhouse effect (CGDD, 2009). The energy products tax and motorway tolls do not cover the nuisance cost of road traffic, especially in terms of environmental pollution (Section 3). Railway infrastructure pricing does not finance the maintenance and extension of the network. In addition, urban planning does not play enough of a role in reducing transport’s environmental impacts. Urban mobility plans, mandatory since 1996 for urban areas with over 100 000 inhabitants, are also being drawn up in smaller urban communities, helping to promote public transport. Difficulties with implementation persist, however, especially because of the number of players involved and the complexity of integrating urban mobility plans into the existing hierarchy of planning documents (CERTU, 2013). Statutory instruments for restricting traffic in urban areas, such as congestion charging and limiting access for the most polluting vehicles, were barely used until recently (Chapter 1).

The 2015 Growth, Activity and Equal Economic Opportunity Act should encourage complementarity and competition between transport modes (OECD, 2015e). It creates an intermodal regulatory authority responsible for railways, motorways and express coach travel and liberalises coach routes which do not offer a service within 100 kilometres of the departure point. That should increase mobility among the less well-off, being cheaper than rail travel, and open up certain areas poorly served by the railways. Similar measures in other European countries have seen coach travel replace a significant number of car journeys, while the substitution effect with the railways has been limited (Perrot, 2015). Depending on coach occupancy rates and the increase in demand for transport, the measure could have a favourable effect on emissions of greenhouse gas and atmospheric pollutants.

7.1. Overall innovation performance

The European Innovation Union scoreboard ranks France in the middle of the European league table behind the Scandinavian countries, Germany, the Netherlands and the UK but ahead of southern, central and eastern European countries (OECD, 2014a). France ranks higher than the European average for human resources, scientific publications, public funding and venture capital but scores much less well for business investment, entrepreneurship and linkage between business and innovators, especially in small and medium enterprises.

France’s gross domestic expenditure on R&D rose from 2.1% to 2.2% of GDP between 2000 and 2013 (OECD, 2015f). This is lower than the OECD average (2.4%) but higher than the European average (1.9%). The target of 3% of GDP contained in the Europe 2020 strategy will be difficult to achieve. Public investment in R&D has remained flat since 2000 at 0.8% of GDP but indirect support for private-sector R&D has increased considerably. Much of this is due to the research tax credit, expenditure on which amounted to 0.26% of GDP in 2013 compared with 0.09% in 2006 (OECD, 2016). France is the OECD country with the highest level of tax assistance for R&D as a proportion of GDP. Private-sector R&D spending amounted to 1.4% of GDP in 2013 compared with an OECD average of 1.6% (OECD, 2015f).

7.2. Action framework

The French research and innovation system is complex (OECD, 2014a). Two ministries, the Ministry of Higher Education and Research and the Ministry of the Economy, Industry and the Digital Sector, play leading roles, the former in linking education and research and the latter in linking industry and research. Research also falls within the remit of several other ministries (MEEM, Agriculture, Defence, etc.), while public research bodies such as the National Research Agency not only provide funding but also have an operational role. The system has been reformed on a number of occasions over the last ten years (OECD, 2014a). An Investments for the Future Programme was introduced in order to boost scientific excellence and direct public research towards certain economic, social and environmental goals (Box 3.2). By creating new programmes and new entities, however, it also increased complexity and the need for co-ordination.

Eco-innovation policy contains a number of strands embodied by different players, including the National Research Agency, the environment and energy management agency (ADEME), the public investment bank to support innovation in small business (Bpifrance), scientific and technical institutions, and bodies such as the Atomic and Alternative Energies Commission and IFP New Energies. They all roll out a variety of measures and programmes whose coherence is not always apparent. ADEME35 is the main agency for new energy and environmental technologies (ADEME, 2014b). It supports research by public- or private-sector operators and funds pre-industrialisation phases through research demonstrators (Box 3.2).

Eco-innovation is one strand of France’s new industrial policy, reaffirmed in response to the economic crisis in order to promote new sources of economic growth. The ministers for sustainable development and industry created a Strategic Orientation Committee for Eco-Industries in 2008 in order to encourage the development of 19 green industries.36 Inter alia, it drew up an “Ambition Ecotech” road map in 2012 and helped more generally to frame public policies such as the Investments for the Future Programme (CGDD, 2013d). Renewable energies, thermal renovation of buildings, recycling and green materials, water quality and scarcity management were among the 34 key industries identified in the 2013 New Face of Industry in France plan, followed by the nine industrial solutions37 in the Industry of the Future plan announced in 2015 in order to modernise industrial facilities and address a reduced number of priority markets. Among the 71 competitiveness centres created in 2014 to encourage public-private collaborative R&D projects, nine concerned energy and seven related to green technologies and the environment (CGDD, 2015a).

Eco-innovation has become a research priority. The 2009 Grenelle I Act committed the government to mobilising an additional EUR 1 billion in 2012 for research into sustainable development, especially climate change, the energies and motors of the future, biodiversity, healthcare and waste recycling. It also provided that expenditure on research into clean technologies and the prevention of environmental damage would be increased in order to attain the same level in 2012 as expenditure on civilian nuclear research. In fact, that was already the case in 2009. Environmental urgency and green technologies were a priority of the 2009 National Research and Innovation Strategy. Sustainable resource management and adaptation to climate change, safe, effective and clean energy, and sustainable mobility and urban systems were among the ten challenges addressed in the 2014 National Research Strategy entitled “France Europe 2020”.

7.3. Eco-innovation performance

In 2013, the European eco-innovation scoreboard ranked France among the leaders of eco-innovation in Europe, in 8th place out of 28, behind Germany, the UK and Spain but ahead of Italy and the Netherlands (EIO, 2014). France is particularly effective in water management, sanitation, waste management and environmental engineering, boasting large firms and highly reputed public research institutes. More recently, progress has been made in technologies to combat global warming.

Expenditure on environmental R&D38 has increased faster than total R&D spending since 2000, rising from 0.13% of GDP in 2000 to 0.20% in 2013 (CGDD, 2015a). Most of this rise is due to private-sector spending, since public-sector expenditure has fallen as a percentage of GDP. However, the trend masks the growing share of indirect public support in the funding of private-sector expenditure.

Public research, development and demonstration (RD&D) budgets dedicated to renewable energies and energy efficiency increased substantially between 2000 and 2013 to reach 31% of public RD&D budgets devoted to energy (Figure 3.6). While that reflects the growing priority given to these areas, the proportion is still lower than in the majority of OECD countries (Annex 3.A2). Nuclear power, though declining significantly, continued to account for half of these budgets in 2013.

Figure 3.6. Government research, development and demonstration budgets are being directed towards renewable energies and energy efficiency

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Over the period 2010-12, environment-related technologies accounted for 12% of patent applications from inventors resident in France, barely more than the OECD average of 11%, compared with 5% in the early 2000s (Annex 3.A2). As in other OECD countries, growth has been fastest in climate-related technologies, especially those which seek to reduce emissions and improve energy efficiency in transport (conventional and electric vehicles, air transport), and energy-related technologies, such as renewable energies, energy storage and fuel cells (Figure 3.7). Compared with other industrialised countries, France has benefited from industrial champions in sectors that are already mature, such as heating, hydraulics, insulation and cement, or have not really taken off yet, such as electric vehicles, reaping the rewards of publicly funded research (Ménière et al., 2013). In contrast, it has played only a marginal part in the rapid technological development of emerging sectors such as renewable energies, despite the amount of public research in that sphere. In order to position itself as a leader in new clean technologies, France will have to improve the linkage between public research and the private sector.

Figure 3.7. A sharp rise in patent filings involving climate-related technology

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France has made extensive use of regulatory, price and tax instruments to stimulate eco-innovation, targeting both supply and demand. Major environment policy measures include the bonus-malus scheme, feed-in tariffs for electricity from renewable sources, energy-saving certificates, the sustainable development tax credit, soft loans for building renovation and the general tax on polluting activities. European regulations on vehicle emissions, building energy efficiency, extended producer liability and end-of-life vehicles are a major factor in the development of green industries (CGDD, 2013d). However, the fast-moving nature of such industries requires frequent monitoring so that support measures can be adjusted to changing markets in order to head off windfall effects and burgeoning budget costs. At the same time, adjustments must be sufficiently predictable to give investors medium-term visibility and prevent legal uncertainty (Chapter 4).

Promoting green procurement could help to sustain demand for eco-innovation. Public procurement was estimated at 14% of GDP in 2011, a high percentage within the OECD (OECD, 2015a). The 2007 National Sustainable Public Procurement Action Plan had a limited effect: in 2013, only 6.7% of public procurement contracts worth EUR 90 000 or more contained an environmental clause. The non-binding nature of the plan and the lack of tracking indicators are two of the shortcomings mentioned (MEDDE, 2015). Under the 2015-20 plan, 30% of contracts in 2020 should contain at least one environmental clause and 25% at least one social clause.

Public support for R&D has sustained business R&D during the crisis, in contrast to the situation in other OECD countries (OECD, 2014a). However, firms have probably not increased their expenditure in line with the assistance received and the effects on innovation have fallen short of expectations (Bozio et al., 2014). Although a growing share of public funds intended for businesses is distributed on the basis of open calls for tender, large firms remain the principal beneficiaries of public support (OECD, 2014a). Only a quarter of the investment programmes managed by ADEME benefit small businesses (Assemblée Nationale, 2015). Its PME 2015 small business initiative, which cofinances R&D projects relating to mobility technologies and usages, could be extended to other sectors. Better communication with businesses would also facilitate access to funding, for example in connection with the Ecotechnologies fund for innovative small businesses, in which ADEME is involved alongside Bpifrance. Assessments of the environmental, economic and social impacts of funded projects also still need to be carried out. They should form part of a wider effort to assess the many supports for innovation with a view to rationalising them, making them easier for beneficiaries to access and more economically effective, refocusing government action on the major challenges facing the nation and strengthening the links between them and European funds (République Française, 2015).

8.1. Development co-operation

France was the fourth largest donor on the OECD’s Development Assistance Committee (DAC) in 2014. However, net official development aid (ODA) has fallen significantly since 2010 (Figure 3.8). It was supposed to reach 0.42% of gross national income (GNI) in 2015 and remain stable at around 0.39% over the period 2016-17 (République Française, 2014). France failed to achieve its objective as an EU Member State of devoting 0.51% of GNI to ODA in 2010 and will not meet the goal of 0.7% in 2015 (Annex 3.A3).

The environment has assumed growing importance in French development co‐operation policy since 2007. Mitigating climate change and protecting biodiversity and the environment were included among the four priorities in the second set of strategic guidelines for the period 2007-11 drawn up by the French Development Agency (AFD), which implements the majority of France’s bilateral assistance (AFD, 2007). Sustainable development is the guiding principle of the third set of strategic guidelines for the period 2012-16 (AFD, 2012). The inclusion of environmental considerations in all assistance programmes is a requirement under the Grenelle I Act, which specifically mentions the preservation of biodiversity and adaptation to climate change (Journal Officiel, 2009). The 2014 Development Policy and International Solidarity Act, the first French law on the subject, reinforces this message by stating that “giving full consideration to environmental issues in development policy is a necessary precondition for securing the long-term future of anti-poverty programmes”, and identifying climate change as a cross-cutting priority (Journal Officiel, 2014).

Reflecting the growing priority given to the environment in French co-operation, environment-related commitments in bilateral ODA39 increased both by volume and as a proportion of total bilateral aid between 2007-08 and 2013-14 (Figure 3.8). France was the fourth largest provider of ODA in this sphere on average over the period 2013-14 and devoted a higher-than-average share of its total ODA to the environment (40% compared with 31%) (Annex 3.A3). More than 84% of French environment-related ODA is allocated in the form of concessional loans, compared with an average of 43% for DAC members. However, France could slip down the ranking when the measurement of development financing is modernised in 2016, since only the “grant equivalent” component of concessional loans will be counted.40 French environment-related bilateral ODA is increasingly earmarked for programmes containing environmental objectives outside the environment sector (transport, energy and agriculture). In comparison with total bilateral ODA, it focuses on intermediate-income countries in Latin America and east Asia.

France has also strengthened its multilateral commitments to the environment, increasing its contribution to the Global Environment Facility by 40% between the fourth replenishment (2007-10) and the fifth (2011-14) (Polycarp et al., 2012), and by a further 6% in the sixth (2014-18) (GEF, 2010; GEF, 2014). It is also one of the DAC donors to provide other public-sector contributions (which do not meet the criteria for ODA) targeting environmental sectors, especially major water supply and sanitation infrastructure projects, hydropower facilities and dams, and power generation from other renewable sources.

Climate change-related bilateral ODA commitments increased between 2007-08 and 2011-12, especially assistance for mitigation (Figure 3.8), before falling back slightly in 2013-14. Under the 2009 Copenhagen Accord, France committed to providing EUR 1.26 billion in fast-start finance over the period 2010-12, which explains the sudden increase in ODA for mitigation in 2009-10 and 2011-12. Although it fulfilled its commitment (République Française, 2012), the bulk of funding was provided in the form of concessional loans which are difficult for low-income countries to repay (Curtin, 2013; Oxfam, 2012). In addition, climate change-related bilateral ODA is very unbalanced: the adaptation/mitigation funding ratio over the period 2010-14 was 1 to 4.1, compared with a DAC average of 1 to 1.6. In order to achieve the Grenelle I Act objective of integrating adaptation into its co‐operation policy, France ought to seek a better balance (OECD, 2014b). That is all the more justified insofar as France aims to concentrate its efforts on the poorest countries, which are also the most vulnerable to the effects of climate change (Journal Officiel, 2014). At multilateral level, France was one of the first countries to replenish the Green Climate Fund: it has signed an agreement to give USD 1 billion over the period 2015-18, the fifth largest contribution.41

Figure 3.8. Environment-related ODA is rising

 https://doi.org/10.1787/888933406165

France uses and promotes innovative financial instruments for the environment and climate change. It has a unique structure for environmental funding in developing countries: the French Global Environment Facility (Box 3.3). It also devotes some of the revenue from the financial transactions tax to development (15% in 2014, 25% in 2015), one of the two targets being the environment and climate change (République Française, 2014). In September 2014, the French Development Agency issued climate bonds on the financial markets to raise funds for mitigation and adaptation projects (AFD, 2014a).

Box 3.3. The French Global Environment Facility

Created in 1994, the French Global Environment Facility (FFEM) cofinances development co-operation projects relating to biodiversity, climate change, international waters, land degradation, persistent organic pollutants and the stratospheric ozone layer. On average, each euro from the FFEM mobilises EUR 9 of additional cofinancing. The FFEM has cofinanced 275 projects since its inception, with a total value of EUR 317 million. It is distinguished from the Global Environment Facility by the geographical concentration of its projects in sub-Saharan Africa and the Mediterranean (Figure 3.9). Under the strategic programming framework 2013-14, at least 35% of funding will be devoted to biodiversity and 35% to climate change; these targets were met in 2013 (Figure 3.9).

Figure 3.9. Distribution of FFEM funds in 2013

A committee of six institutions defines the FFEM’s strategy. Its members are representatives of the Ministries of the Economy, Foreign Affairs, the Environment, Education, Research, Agriculture and Development. A scientific and technical committee made up of outside experts has a consultative role. Operationally, the FFEM is attached to the French Development Agency.

Source: FFEM (2014), Rapport Annuel 2013; FFEM (2013), Cadre de programmation stratégique 2013-2014.

Under legislation passed in 2005 (the Oudin-Santini Act), local authorities can use up to 1% of their water and sanitation budget to finance co-operation projects in those areas. The scheme was extended to waste in 2014. The entry into force of the Water Act helped to mobilise increasing amounts, up from EUR 10.8 million in 2007 to EUR 23.5 million in 2013, mostly used to finance drinking water infrastructure in rural areas of Africa (the 2014 Water Solidarity Programme). One NGO has estimated that if all local authorities and water agencies were to mobilise their full 1%, they could raise EUR 65 million a year (Défis Sud, 2015).

Since 2007, the French Development Agency has applied a policy of controlling environmental and social risk in project design and execution. The environmental and social risks and impacts of each project must be assessed at the time they are presented to the decision-taking authorities. If the assessment identifies risks and negative impacts, the project sponsor must propose measures to mitigate or offset them. The project sponsor and/or the AFD’s supervisory staff then ensure that such measures are implemented. Since 2011, the AFD has had a blacklist of projects which it refuses to finance on environmental and social grounds, which include destruction of a critical habitat and crossborder trade in waste (AFD, 2011).

In 2014, the AFD introduced the “sustainable development opinion”, comprising a formal framework for discussion of sustainable development, an assessment of the expected impacts and a formal opinion. The opinion is based on a scorecard containing six categories, including biodiversity and natural resources and climate change (AFD, 2014b). Being independent and taking a long-term view, it is intended to complement the policy of controlling environmental and social risk (AFD, 2014b). However, the ranking of impacts identified by the two systems remains unclear.

The AFD has adopted a climate-development strategy for the period 2012-16, based on three objectives. The first is to devote 50% of its assistance each year and 30% of that of Proparco, its private-sector financing arm, to climate projects. The AFD achieved its objective for the first time in 2014, while Proparco met its target in 2012 and 2014 (AFD, 2015). The second is to measure the carbon footprint of the projects it finances systematically and in advance. The AFD is one of the first agencies to introduce a system of this kind. The third objective is to take account of a project’s impact on the climate, with the help of a scorecard which combines the project’s emission levels and the characteristics of the country in which it will be rolled out. For example, the AFD may finance a high-emission project in a less advanced country or a country in crisis but not in an emerging country. This approach suggests that the environment and mitigation are challenges that only the most highly developed countries can consider tackling. The AFD’s emphasis on environmental and climate-related ODA in intermediate-income countries lends further credence to that idea. Nonetheless, feedback shows that high-emission development generates substantial healthcare costs (OECD, 2013b), and that renewable energy has considerable potential and may be cheaper and easier to roll out than coal in rural areas of low-income countries (Carbon Tracker Initiative, 2014; IEA, 2014).

8.2. Corporate social responsibility

France promotes the OECD Guidelines for Multinational Enterprises, notably in the Development Policy and International Solidarity Act (Journal Officiel, 2014). In 2013-14, the National Contact Point (NCP) organised ten promotional activities in the form of meetings and presentations, more than any other OECD country (OECD, 2014c).

The NCP, an independent tripartite body co-ordinated and chaired by the Ministry of the Economy, comprises representatives of the business community, trade unions and four ministries.42 Since 2014, it has revised its rules of procedure in order to increase transparency by structuring the dialogue with civil society and enhancing the possibilities for communication. It has also extended the possibilities for calling on expert advice (PCN, 2014). Although it recently acquired a permanent secretary general, the NCP has neither a specific budget nor an advisory committee (OECD, 2014c). The NCP examines the “specific instances” referred to it by associations, NGOs or trade unions relating to French multinationals’ compliance with the guidelines. 19 specific instances have been referred to it since 2001, four of which were of an environmental nature (OECD, 2015g). They concerned the activity in France of a Swiss multinational mining company, a hydropower project carried out by a French company in Laos, the failure of a French company to influence a Cameroon trading partner in the agro-industrial sector which was in breach of the guidelines, and the building by a French multinational of a factory in a zone traditionally used as pasture land in India (OECD, 2015g). The NCP’s mediation in the Cameroon case had very positive outcomes in terms of encouraging the company in question to adopt good practices (OECD, 2014c; PCN, 2013a).

In 2013, a group of NGOs criticised the NCP for a lack of impartiality, predictability, fairness and compatibility with the guidelines (CCFD-Terre Solidaire et al., 2013). They pointed out that the NCP did not have sufficient resources to process cases within a reasonable time. The criticism probably contributed to the revision of its rules of procedure. A voluntary peer review of the French NCP is due to take place in 2016.

France ranks third in the world in terms of the volume of climate-related assets held by investors (Novethic, 2015). Between 2009 and 2014, however, the 25 largest French banks invested EUR 847 billion in fossil fuels and only EUR 89 billion in renewable energies, making the French banking sector the third most carbon-heavy in the world after the United States and the UK (Naulot, 2015). The Energy Transition Act introduced a requirement for institutional investors to measure and report their carbon footprint and their contribution to the financing of energy transition. France is the first country to impose such an obligation, which should make investors’ activities more transparent and encourage them to green their portfolios; however, clarification is still needed about the definitions, methodology and flexibility of the mechanism in order to maximise its impact (2º Investing Initiative, 2015; Naulot, 2015).

8.3. Export credits

France backs the 2012 OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence. Coface, the French export credit guarantee agency, evaluates the environmental and social impacts of all projects with a value of EUR 10 million or more and a credit term of more than two years, as well as of projects in sensitive areas. Since 2005, it has applied the World Bank social and environmental safeguard policies and performance standards to the projects it guarantees. Firms applying for export credits or investment guarantees are systematically informed of the OECD Guidelines for Multinational Enterprises, and France is one of three countries which require applicants to sign and declare that they have read and understood them (OECD, 2014c). Every three months, Coface publishes an online list of projects worth more than EUR 10 million that it has guaranteed, together with details of all Category A projects (projects with significant potential environmental impacts).

In 2015, the government announced the abolition of export credits for the construction of coal-fired power plants not equipped with CO₂ capture and storage systems. This would mark a major step forward: such credits amounted to EUR 1.8 billion between 2003 and 2013, an amount exceeded only by South Korea and Japan (OECD, 2015h). France is also committed to promoting the elimination of fossil energy subsidies in Europe and encouraging multilateral development banks to stop supporting coal-fired power plants. These are laudable initiatives, but in order to ensure that they are politically coherent and credible they should be accompanied by a reduction in fossil energy subsidies in France.

8.4. WTO Environmental Goods Agreement

France, as an EU Member State, is taking part in negotiations on an Environmental Goods Agreement (EGA) within the framework of the World Trade Organisation (WTO). If the negotiations are successful, import duties on a list of goods that improve the environment will be gradually reduced. Several goods considered for inclusion in the list are used to produce renewable energy or to improve energy efficiency.