Chapter 3. The evolution of the tax on pesticides and the pesticide savings certificates in France

Increasing pressure on policymakers to address pesticide pollution

In France, policymakers have come under increasing pressure to address pesticide pollution (Saint-Ges and Belis-Bergouignan, 2009). According to a recent perception survey, risks related to pesticides are the second most worrying environmental risk for the French population (after air pollution) (ISRN, 2015). Heightened attention in the media, studies linking pesticide exposure to disease, as well as a recent court ruling linking a farmer’s sickness to pesticide exposure (Cour d’Appel of Lyon, 2015) continues to alert farmers and the public, especially those living near agricultural sites, to potential risks.

At the same time, France is Europe’s leading agricultural producer7 with powerful agricultural unions (including the Fédération Nationale des Syndicats d’Exploitants d’Agricoles (FNSEA); the Confédération Paysanne; Jeunes Agriculteurs) and a dominance of rural representation in the Senate (the upper house of Parliament in France). The Chambres d’agriculture8 work closely with farmers, providing technical advice about the growing process. They tend to be conservative in their approach, but have the potential to be influential in the diffusion of more ecologically-friendly practices.

While knowledge of the potentially negative impacts of pesticides has been in the public sphere for over a decade, the extent to which public pressure has been sufficiently strong to influence policy decisions at the national level and provide a counterweight to other political pressures, including the agricultural lobby, is a matter of debate. Over the course of the past decade, the influence of public pressure on policy is difficult to trace, but more recently, increased media attention, campaigns by NGOs and swelling public pressure has appeared to give momentum to further action on specific types of pesticides. A notable example is the French Parliament’s ratification in June 2016 of a ban on neonicotinoids (insecticides with harmful impacts on bee populations) starting in 2018. Strong public pressure and concerted engagement from the Minister of Ecology helped to push for policy action on this issue.

Overall, there are multiple forces driving policy reform on pesticide use in France. Some argue that the main driver of reform in this area has been the necessity to meet objectives under the relevant EU Directives and Regulations on pesticides and environmental quality, in particular the Directive on the Sustainable Use of Pesticides (Directive 2009/128/EC), the Regulation on Plant Protection Product Authorisations (EC Regulation No. 1107/2009) and the EU Water Framework Directive (Directive 2000/60/EC). Others point to the elevated attention in the media and action by NGOs, which have contributed to a more aware and knowledgeable general public. An important driver is undoubtedly the French population demonstrating its preferences through market choices, e.g. the growing demand for organic products and their willingness to pay a premium for them.

The general tax on polluting activities

The first tax applied to pesticides in France was introduced in 1999 under the framework of the general tax on polluting activities (taxe générale sur les activités polluantes) (TGAP). The tax was applied to substances contained in commercial products classified as dangerous, including pesticides. The tax had two stated objectives: to provide an incentive to industry to develop less toxic alternatives and to provide an incentive for farmers to purchase and use less toxic products (ORP, 2015). In addition, it also served to raise revenue. The tax rate varied according to the toxicity of the pesticide, with seven categories of products identified and tax rates ranging from EUR 381 per tonne to 1 677 per tonne. With the adoption of this tax, France became one of the few OECD countries (along with Denmark, Norway, Sweden and the United States) with taxes on either fertilisers or pesticides.

Setting an ambitious pesticide use reduction target

In 2007, an ambitious target to reduce pesticide use by half (“if possible”) by 2018 was among the outcomes of the comprehensive, multi-stakeholder process Grenelle de l’environnement (the Grenelle Forum).9 The Grenelle Forum set an important precedent for stakeholder engagement in environmental issues in France. It founded a new model of environmental governance built among five stakeholder groups, involving the government, elected local representatives, business employers, unions and NGOs. Through its broad participatory approach, this five-part governance system10 lends greater credibility to the commitments made on environmental issues (OECD, 2016). Although a time and resource intensive process, Grenelle is credited with helping to set more ambitious objectives for pesticide reduction (along with other environmental goals) than might have otherwise been the case.11

Drawing on the “Grenelle model” of governance, a broad participatory approach was used in the development of the Ecophyto Plan, which was initiated in 2008 to support the pesticide use reduction target. The Plan developed a set of actions to manage risks from pesticide use, monitor impacts, and reduce cropping systems’ dependence on pesticides (OECD, 2012). These actions include better monitoring of use and risks, research and development for alternatives to pesticide use, and information and communication campaigns.

The tax on diffuse agricultural pollution

In 2008, the TGAP on pesticides was replaced by a tax on diffuse agricultural pollution with the entry into force of the Law on water and the freshwater environment (loi sur l’eau et les milieux aquatiques) (LEMA). The law introduced seven “water taxes” (including the tax on diffuse pollution), which are collected by the six Water Agencies (les agences de l’eau).

The tax on diffuse pollution is levied on the sale of pesticides, with the rate varying according to toxicity of the substance (Table 3.1).12 Tax rates for pesticide in other OECD countries are summarised in Annex 3.A1. In France, the tax is paid by farmers and collected by distributors of pesticides (rather than by manufacturers and importers) in order to make it more visible to farmers (Bommelear and Devaux, 2012). The ceiling on the diffuse pollution tax rate is determined by legislators, established in the environmental law (Cour des comptes, 2015).

The rate of the diffuse pollution tax was raised several times between 2008 and 2011. At present, however, the tax rate for the most toxic substances still only amounts to around 5% or 6% of the sale price of pesticides, which strongly limits its effectiveness as an incentive to reduce use (OECD, 2016). The increase in the tax rate was mainly driven by the need to raise revenue to finance the Ecophyto plan (Potier, 2014). The total revenue from the tax increased from EUR 100 million in 2011 to EUR 110 million in 2014 (Marcus and Simon, 2015). The amount of tax revenue channelled to the Ecophyto Plan I amounted to EUR 41 million per year, with the remainder going to the Water Agencies.13 As of 2016, the total amount of tax revenue is expected to reach EUR 150 million, of which EUR 71 million will go to the Ecophyto Plan II. This revenue recycling mechanism, which the FNSEA, among others, lobbied for, was a factor that helped to increase the political acceptability of the tax and subsequent increase in rates.

Between the time the tax was introduced in 2008 and 2013, the annual amount paid by farmers increased by a factor of five (Cour des comptes, 2015). However, farmers’ overall contribution to the funding of Water Agencies remains low, in terms of percentage of receipts (6% of all taxes in 2013) and is still well below the health and environmental costs they generate and the incentives they receive (Cour des comptes, 2015; Sainteny, 2011; OECD, 2016). Thus, while the establishment of the tax on diffuse pollution is noteworthy, the polluter pays principle is still not fully applied (Cour des comptes, 2015).

Despite the increases in the tax rate, the tax on diffuse pollution has not been very effective at reducing pesticide use in agriculture (Sainteny, 2011; Lavraut et al., 2013). This is mainly attributed to the relatively low tax rate and the weak price elasticity of demand for pesticides14 (Dutartre et al., 2014; Carpentier, 2010). To function as an effective incentive to reduce pesticide use, tax rates would need to be raised substantially. Butault et al. (2011) estimated the level of tax that would correspond to reductions in pesticide use. The study modelled the introduction of a tax that would increase the price of pesticides and the resulting impact on various modes of agricultural production. It estimated that to reduce pesticide use by 30%, the tax rate would need to be 100% (of the sale price of the product), while for a reduction of use of 50%, the tax rate would need to be 180%. Thus, moderate increases in the tax rate alone are not sufficient to change behaviour, unless accompanied by other measures such as training, the diffusion of good practices and the development of alternatives (Dutartre et al., 2014; Butault et al., 2011).

Since the last increase in rates in 2011, several proposals have been made to continue to raise the rate and expand the tax base. As part of his efforts to promote agro-ecology, the Minister of Agriculture, requested in 2012 that the ministries of agriculture, environment and finance work together to examine how the revenue from the tax on diffuse pollution could best be used to support actions under the Ecophyto Plan. A joint mission studied ten scenarios to increase the tax rate and/ or enlarge the tax base. The scenario with the highest tax rate was considered to place too high of an economic burden on the agricultural sector.15 Instead of increasing the tax rate, the government chose to enlarge the tax base to cover a longer list of substances. This decision was the result of political discussions and the final outcome influenced by the fact that the decision to enlarge the tax base could be taken by décret, therefore at the initiative of the government, without involving Parliament.16 In contrast, increasing the tax rate would require legislative action by Parliament.

The change in the tax base took effect on 1 January 2015. It is expected to increase the revenue generated from EUR 41 to 71 million from 2016 (MAAF-MEDDE, 2015). Thus, this choice allowed for an increase in revenue raising, but with tax rates remaining at relatively low levels, the potential incentive effect remain weak.

In a separate development, in 2012, the government eliminated the reduced the rate of the value added tax (VAT) for pesticides and fertilisers via an amendment to the Law of Finance. This amendment followed the publication in 2011 of a comprehensive national study on public subsidies harmful to biodiversity (Sainteny, 2011). The re-establishment of a standard VAT rate on farmers’ consumption of fertilisers and pesticides did not have an impact on their production costs, as most farmers are subject to the simplified VAT system and recover VAT that they pay on the purchase of their products. This reform was one of the very few recommendations from the study which was successfully implemented.

Stakeholder consultations to inform the design of CEPPs

A collaborative approach was taken in the process of developing proposals on the specific design of the CEPPs, including public consultations led by the ministries of environment and agriculture. Inspired by the “Grenelle” model, this consisted on broad engagement with a wide diversity of stakeholders with periodic meetings spanning nearly a year and a half. This approach engaged the vital support of research institutions, including INRA, which contributed to a sound evidence base the government could rely on to defend against lobbying efforts attempting to stall or weaken action on pesticide reduction. It also permitted the engagement of a diversity of actors from the agricultural sector, including those pioneers advocating for stronger action on agro-environmental measures and actively demonstrating the viability of alternative techniques.

Consultations took place in 2014 with professional organisations representing farmers, distributors, as well as scientific and technical experts. The mechanism of pesticide saving certificates faced criticism from agricultural professional organisations, in particular due to the complexity of the scheme, which was described as an “incomprehensible system” (“usine à gaz”) (Dutartre et al., 2014). The scheme was also criticised for focusing on the reduction in pesticide use, rather than the reduction in the impact of the pesticide use and thus, the risk related to pesticide use.19 However, the reduction of pesticide use is the main lever to reduce the risk related to their use. In general, agricultural organisations preferred the CEPPs as a policy option, compared to increasing the tax on pesticides or more direct regulation. The majority of agricultural actors consulted indicated that more direct regulation would not be acceptable (Dutartre et al., 2014).

Distributors raised concerns about possible competitiveness impacts related to the implementation of the CEPPs (Dutartre et al., 2014). As France is the only country in the EU implementing this novel instrument, distributors raised concerns about possible market distortions that it could create for French pesticide distributors. They noted that there could be possible distortions, especially along the border, between French farmers who buy pesticides from French distributors subject to both the tax on diffuse pollution and the CEPP scheme and those who buy pesticides from a (non-French) European distributor not subject to either regime. However, the joint mission concluded that potential competitiveness impacts are not related directly to CEPPs, but instead concern fraudulent behaviour and should be addressed by strengthening existing controls (Dutartre et al., 2014). Furthermore, it is recognised that a reduction in pesticide use can be made while still maintaining production levels, as demonstrated by the DEPHY network20 (MAAF, 2016b). However, this requires a change in management practices, which take time to diffuse widely.

Drawing on the recommendations of the joint mission, the Ministry of Agriculture set out the detailed design of the CEPPs in an ordonnance and a draft décret (an order with legal force issued by the French President or Prime Minister). In the draft décret, the Ministry of Agriculture proposed that the CEPPs should target a reduction in pesticide use (as measured by the NODU) of 20% after the 5-year period of experimentation. It was proposed that failure to reach the objective for reduction would be sanctioned by a fine of EUR 11 per NODU of savings lacking, an estimated 11 times the net profit per NODU of pesticide distributors. The proposed overall target of the scheme, the level of the sanction and the indicator to measure progress were all contested by pesticide distributors and the agricultural union, FNSEA.21 The Ministry of Agriculture agreed to discuss these three points with these stakeholders. Stakeholders argued that the level of the sanction was too high and was not an accurate estimate of distributors’ net profit per NODU, but the gross revenue per NODU. Also, they referenced the example of the energy saving certificates, which started with a low level of sanctions that eventually increased as the scheme was refined and improved. As a result of these negotiations with stakeholders, the level of the sanction in the draft décret was reduced by more than half, to EUR 5 per NODU.

The indicator to measure progress under the CEPP scheme will remain the NODU. Although an alternative composite indicator to measure the progress of developing and diffusing economically viable alternatives to pesticide use, as proposed by FNSEA, will also be developed jointly by the ministries of agriculture and environment and used as a complementary measure in the context of the Ecophyto Plan II.

In addition to negotiations with targeted stakeholders, a public consultation on the draft décret took place in early May 2016. The overall target of reduction in pesticide use by 20% was seen as acceptable. The draft décret will also be evaluated to assess the economic impacts on affected businesses (pesticide distributors and farmers). An environmental impact study is not obligatory.

At the same time, there have been several calls to analyse the possibility to strengthen the incentive nature of the diffuse pollution tax (Green Economy Committee, 2015; Potier, 2014). In particular, in 2015, the Green Economy Committee recommended that a study be undertaken to examine this issue, including an analysis of how the revenue raised could be allocated. The committee recommended that two options be examined: using the revenue to sustain the competitiveness of the agricultural sector and using the revenue to support farmers evolving their practices towards a reduction in pesticide use. The potential use of additional revenue from an eventual increase in the tax was a strongly debated issue within the committee, with environmental NGOs insistent that the revenue should benefit only those farmers changing to more ecological practices and opposed to revenue being used to offset any competitiveness impacts on the sector a higher tax could generate.

Overall, both the Ministries of Environment and Agriculture agree that any future increase in the tax on diffuse pollution should be used to support actions to encourage the reduction of pesticides use. However, there has been disagreement in the past about who would receive the revenue and how it would be used: the Ministry of Environment preferring that the revenue continue to be allocated to the Water Agencies and the Ministry of Agriculture preferring that the revenue is directly recycled to the agricultural sector (to the farmers, via the distributors) (Dutrante et al., 2014). Since the adoption of the Ecophyto Plan II, both ministries co-pilot the plan, and have reached agreement on the objectives and means to implement the plan. This co-pilotage is considered an important element of government efforts to encourage the reduction of pesticide use.

Revenue recycling helped secure ambitious targets and political acceptability of reforms

This case illustrates a number of challenges in implementing effective biodiversity policy reforms and highlights lessons for overcoming some of them. In this case, the distribution of costs and benefits of policy reforms has been a facilitating factor for gaining political acceptability. In particular, the tax on diffuse pollution has been widely used as an instrument to finance pesticide reduction policy, rather than as an instrument to generate an incentive for the reduction in pesticide use. Recycling the revenue from the tax to fund actions under the Ecophyto Plan (ultimately benefitting farmers) to reduce pesticide use and Water Agency programmes facilitated decisions to increase the tax rate on diffuse pollution over time, which were relatively modest. This revenue recycling was also a critical factor that supported maintaining the ambitious reduction targets under the Ecophyto Plan II. Further, the fact that farmers benefit from a simplified VAT scheme and that the removal of the reduced VAT rate did not affect production costs for most farmers undoubtedly contributed to the acceptance of the removal of this environmentally-harmful subsidy.

However, the low level of the tax on diffuse pollution has not provided an incentive to reduce use and the actions under the Ecophyto Plan I financed by the revenue generated from the tax has fallen well short of the government’s own target while pesticide use continues to increase. Substantial increases in the tax rate have not been pursued, primarily due to concerns about negative economic impacts, especially in some farming sectors where alternatives are more limited. Rather than regulating pesticide use more strictly, the government has chosen to work in collaboration with farmers and pesticide distributors to encourage practices that reduce use. Interestingly, future attempts to raise the tax rate on diffuse pollution may be stymied by strong opposing views about how the additional revenue raised should be used: whether allocated to the general budget, to actions by farmers and Water Agencies aimed at improving ecological outcomes or to offset potential competitiveness impacts in the agricultural sector. This topic has already provoked vigorous debate among stakeholders in the Green Economy Committee.

In general, revenue from environmentally related taxes, such as the tax on diffuse pollution, should be treated as general government revenue and used to maintain spending, reduce debt or reduce other taxes (OECD, 2011). While the earmarking of revenues from environmentally related taxes (e.g. to fund spending on pesticide reduction policies) can promote transparency and thus help garner public support and thereby the political acceptability of the tax, it also bypasses or pre-empts the annual budgets, where departments compete for funds on an equal footing, and creates a precedent for other government agencies to have their own earmarked funds (OECD, 2013).

Concerns about competitiveness impacts stalled reforms in some instances

This case also provides an example of how competitiveness concerns have been sufficient to limit the increases in the rate of the tax on diffuse pollution to modest levels, far below levels that could have a strong incentive impact on pesticide use. However, concerns about potential negative impacts on competitiveness have not thwarted the introduction of a novel policy instrument (the CEPPs), despite France being the only EU country to put such an instrument in place.

Considering the strong opposition of the agriculture sector to stricter regulation or a further increase in tax rates on pesticides, the adoption of CEPPs appears to represent a compromise to gain political acceptability of the reform, at least as far as the choice of policy instrument is concerned. Further compromises have been made in key design features of the scheme, such as the level of sanctions to be imposed for non-compliance following consultations with select stakeholders. Although the government has opted to develop a rather complex, novel instrument, it has not given much consideration to potential risk mitigation instruments, such as insurance, to date. This type of policy instrument could help offset potential revenue losses due to declines in the quality or quantity of production arising from reduced pesticide use. Reflections on developing such instruments are mandated under the Ecophyto Plan II, so should provide an opportunity to consider such alternative approaches in the future.

Finally, although often cast as such in policy debates, pesticide use reduction need not be at odds with the competitivity of agricultural firms. As argued by Potier (2014), the results demonstrated by the range of farmers engaged already in reducing pesticide use – from the pioneers of sustainable agriculture to the champions of precision agriculture – show that such systems can deliver economic, environmental and social benefits, without reducing production. Further, the notion of competitivity itself needs to reflect environmental and social externalities of agricultural production (Potier, 2014).

Broad stakeholder engagement helped to gain support of the agricultural sector

The close co-operation between the Ministries of Environment and Agriculture, along with reliance on the “Grenelle model” of broad stakeholder engagement are viewed as key to advancing policies to curb pesticide use. The agriculture sector has significant heterogeneity, which includes a number of smaller, innovative pioneers, which are helping to push the agro-ecology agenda within the sector. Including a very diverse and broad range of actors avoided the process being captured by only a few large lobby groups. Thus, greater representativeness of stakeholders has had a positive influence on policy reforms in this case. In addition, the frequency of periodic meetings, while time consuming and resource intensive, was an important factor in moving the agenda forward with the engagement of and not in opposition to the agricultural sector. Overall, progress has been rather slow and modest, but it is moving in a positive direction.

However, the “Grennillien” approach does not eliminate the diversity of opinions and interests. According to Potier (2014), a major reason for the failure of the Ecophyto plan was that it was built on a fragile consensus. Gaining agreement on issues where there are real or perceived short term losses is especially difficult. In the absence of Grenelle, it is unlikely that French would have adopted such ambitious targets, but achieving these objectives still requires steady political will.

A robust evidence base is critical for standing firm against lobbying pressure

The engagement of research institutions to build a solid evidence base to support policies to reduce pesticide use has been critical to help the government to stand firm against lobbying pressure from vested interests and to convince reluctant actors to engage. Notably, research support from INRA was instrumental in the development of the EcoPhyto Plan II. Further, an independent commission was convened to develop a scientifically-sound list of approved actions for the CEPPs. Ensuring a robust link between the approved actions and actual reductions in pesticide use is essential for the success of the scheme.

Yet, incomplete information on total environmental and health costs to society of the use of pesticides in France impedes a more thorough cost-benefit analysis of pesticide use and a more comprehensive understanding of the distribution of costs and benefits to society. At present, there has been limited economic evaluation of the costs of negative externalities from pesticide use. An economic evaluation on impacts of pesticide use on public health has yet to be undertaken. This requires much better information on the potential risk to health of pesticide use. Such a valuation study would allow for a more complete evaluation of the benefits of pesticide use against the costs and provide comprehensive information to both policy makers and the public. However, as noted in the recommendation on pesticides of the Green Economy Committee, there is sufficient information on the potential risks of pesticide use to promote stronger action. Incomplete information should not be used as a reason to delay action.

Public concern is an increasingly important driver of reform

There are multiple forces influencing the direction and pace of policy reform to reduce pesticide use in France, including growing public concern, media attention, campaigns by NGOs, policy decisions at the EU level, as well as the influence of agricultural lobbies and other vested interests. Views differ as to the relative influence of these factors. Some argue that the obligations stemming from EU Directives and Regulations have been a major driver, while others point to the heightened attention in the media and NGO campaigns, which have contributed to a more aware and knowledgeable general public and more pronounced action at the highest levels of the French government. What is clear is that public opinion, as expressed through their market choices (via demand for organic products, etc.) is an increasingly important driver of reform. Most agree that the trend towards less pesticide use is irreversible and while certain vested interests many aim to slow or stall reforms, the long-term momentum is toward more environmentally sustainable farming practices.