Balancing Environmental, Fiscal, and Welfare Impacts of Transportation Decarbonization in France

IMF Working Papers, July 12, 2024

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France has taken a leadership role in global mitigation and made significant progress towards reducing greenhouse gas emissions, but further efforts will be needed to meet domestic mitigation targets.
Road transportation accounts for nearly one-third of national emissions and accelerating emissions reductions from this sector is a key part of meeting targets.
The shift to more lightly taxed electric vehicles over the next decade is projected to reduce fiscal revenue from the sector and worsen externalities such as congestion.
A comprehensive reform that combines revenue-neutral continuous feebate schemes with a gradual introduction of road user and congestion charges could support mitigation targets, while maintaining revenue and regulating externalities.
The paper discusses administratively feasible options to introduce such policies as well as key welfare and distributional considerations.

Road transportation is responsible for nearly one-third of France’s national greenhouse gas emissions.
The transition to electric vehicles over the next decade will reduce fiscal revenue from the transport sector due to lighter taxation of EVs.
Externalities, notably congestion, are expected to worsen alongside the vehicle transition unless addressed by policy.

Implement revenue-neutral continuous feebate schemes to incentivize lower-emission vehicle choices while preserving fiscal neutrality.
Gradually introduce road user charges and congestion charges to:
- Regulate and reduce congestion externalities.
- Replace declining fuel-tax-based revenue streams.
Design reform to build on existing policies to improve administrative feasibility and public acceptability.

The paper evaluates administratively feasible options for introducing feebates, road user charges, and congestion pricing.
It addresses key welfare impacts and distributional considerations associated with shifting taxation and pricing from fuels to road use and vehicle emissions.
Emphasis on designing revenue-neutral schemes to mitigate adverse distributional effects while achieving environmental objectives.

Subject: Congestion tax, Environment, Fuel tax, Greenhouse gas emissions, Taxes
Keywords: climate change, congestion, Congestion tax, Decarbonization policy, efficient fuel prices, environmental policy, Europe, fiscal, France, Fuel tax, Global, Greenhouse gas emissions, Policy conclusion, road transportation economics, road transportation policy, road transportation sector policy, transportation sector emission