Ihe energy transition is the major challenge posed by global warming. But the solution most often identified by economists, ecological taxation, increases the energy bill, slows down economic activity and increases inequalities between households. This is what the population perceived during the episodes of the revolt against the eco-tax in 2013 and the carbon tax in 2018. Achieving carbon neutrality must be socially acceptable. It is therefore essential to seek accompanying policies.
Different macroeconomic policy options are analyzed in a note from the Macroeconomics Observatory of the Center for Economic Research and its Applications (Cepremap) published on February 22. This is to support over the period 2024-2027 an increase in the carbon tax similar to that envisaged in 2018 before the movement of “yellow vests”.
A first option, the most natural, consists in redistributing the revenue from the carbon tax to households, favoring the most modest. In a second option, these revenues are invested in the thermal renovation of housing, which particularly benefits the most modest households, whose share of heating expenditure in total consumption is the highest.
But our study shows that these two support policies are likely to be largely insufficient in terms of economic activity and the fight against inequality, because they come up against the likely reaction of central banks.
Indeed, by supporting demand, these two policies contribute to fueling inflation, in addition to the already inflationary effects of the carbon tax. They thus come into conflict with the objective of stabilizing inflation of the monetary policies conducted by the central banks, which are led to raise their interest rates to fight against inflation.
This would amount to reducing the effectiveness of these support policies in terms of boosting activity, and would also have a negative impact on the fate of the poorest, who are more sensitive to the economic situation. This increase in inequalities would even be reinforced by the rise in interest rates, which indeed benefits wealthy households, holders of assets.
Inflationary spiral
Central banks will therefore be faced with a new dilemma throughout the energy transition: respecting their inflation stability mandate at the risk of making it difficult to accept the rise in the price of carbon.
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