Do the riots in Paris mean we need to tread carefully on pricing carbon?

As we've seen in recent weeks in Paris, the reaction to increasing prices for current-day 'essentials' can lead to violent ends. As thousands of "yellow jacket" protestors took to the streets to (initially, at least) riot on green fuel taxes, the Macron government went into a flurry of reconciliatory activity to ease tensions whilst simultaneously seeking to support the initial messages on the need for the hikes. The riots have stopped, but the ramifications for the government may not have.

Whilst France is hardly new to the public protest tactics of socio-political interventions, its populous have largely supported policies to limit greenhouse gas emissions in the past: They were often found leading the EU on more progressive reforms to the EU Emissions Trading System; they installed a carbon tax; and they're the literal figurehead of the COP from which the Paris Accord was borne. So why should a green fuel tax be any different? The answer likely lies in the implications on who pays. Like electricity charges, it's felt that 'green' costs added to these staples will disproportionately impact those least able to pay. With rising numbers falling into the category of being in 'fuel poverty', and with political partisan division and resulting sensitivities at an historic high globally, it's understandable as to why.

Australia went through a similar crisis of confidence when (various iterations of) the carbon pricing mechanism was discussed. Vehicle fuels were largely excluded from the CPRS, as were the agriculture and other sectors. But here's the rub: if we're going to meet the Paris agreement, and if we have any hope of limiting temperatures to within 1.5 degrees, we'll need a broad cross-section of the global economy to share the cost of carbon (not least of which because a broader inclusion means overall costs will be lower), and we'll need to impact on those commodities which touch each and every one of us (there's just no escaping fuels and electricity).

Ironically, Australia may well have had the right idea to solve this already. The Rudd/Gillard governments installed a pricing mechanism which did indeed increase electricity bills, but stapled a benefit scheme which delivered disproportionate returns to lower-income homes and retirees. The intent being that the price-led decision-making would remain in tact, whilst the financial burden would be offset (to those least-able to pay). It was clever; it enabled the environmental externality to be priced, whilst managing the socio-economic consequences. And, by the way, it worked. The emissions-intensity of the grid for the period for which the mechanism was in place (before repealed) reduced.

Of course, the complexity of pricing carbon is more than just this: Aspects like the implications for domestic businesses versus others (the so-called 'trade exposed' sectors) need to be managed; you'll need to consider how new entrants will be dealt with; how captured revenues will be used by governments (or indeed, whether free allocation of credits are applied more generously making it more 'market-based' and less government redistributed); and the interplay between carbon pricing and other emissions-impacting policies (like renewable energy targets or efficiency standards) will all play a role. As countries like New Zealand, South Korea, China, and others wrestle with these discussions we'll see this play out globally as an experimental field. I'll be keeping both eyes peeled... as their successes may well deliver a new era of global carbon pricing.

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Views my own.