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France – EHS Country Case Study

Reform of environmentally harmful subsidies in France

France first began reviewing environmental measures in fiscal documents on a yearly basis in 2006 and later, in 2017, implemented a Green Budgeting system. The methodology for this system was created in 2019 and was later revised in 2020 into the official Green Budgeting. The Green Budgeting provides information on allocated expenses and resources that affect the environment and is a way for the government to use budgetary policymaking to achieve their environmental goals. Conducted on a yearly basis, it analyses all fiscal and budgetary expenses based on six environmental criteria areas and categorizes the environmental impact of each expense as favourable, unfavourable or neutral. This helps to improve the understanding and transparency of environmental information for lawmakers and citizens. The other EU Member States that have implemented a form of Green Budgeting are Finland, Ireland, Italy, Germany and Sweden.

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The Green Budgeting serves only to evaluate and provide information on the environmental impact of all budget expenditures. It does not offer reform suggestions, nor does it publish a list of environmentally harmful subsidies (EHS). Policymakers initiate subsidy reform on their own, and the Green Budgeting does not require reform of EHS. Each expenditure is analysed on a case-by-case basis by relevant stakeholders. Some expenses may be classified as neutral due to a lack of information. Expenses that are categorised as unfavourable do not mean that these expenses need to be eliminated or reformed but could be used to identify potential EHS for future reform. 

In 2020, fiscal expenses affecting the environment were EUR 52.8 billion, of which EUR 38.1 billion were categorized as favourable, EUR 4.7 billion as neutral, and EUR 10 billion as unfavourable. The environmentally unfavourable expenses that have the largest budget impact are those expenses related to transportation and fuel. There is limited information on the environmental impact of the Green Budgeting. While expenses categorized as unfavourable are more likely to undergo potential reform, the Green Budgeting has not yet been used to reform EHS, and there are few to no examples of France implementing compensation measures for EHS reform. Potential reform of environmentally unfavourable transportation and fuel subsidies could impact a wide range of stakeholders. Groups that would be negatively impacted include various industries and citizens, especially low-income households.

For potential EHS reform, the Green Budgeting can be used to help evaluate the environmental and financial impact of reform and help policymakers decide which EHS could be successfully or easily reformed. Since no EHS reform has resulted from the Green Budgeting, it is difficult to say what obstacles reform may face. Successful EHS reform would need to take into consideration political will and provide compensation measures that are environmentally friendly alternatives to reduce the impact on those negatively affected. There are also ways the Green Budgeting can be improved to help aid EHS reform, including comparing expenses to France’s long-term climate goals, improving the definitions of the environmental impact categories, listing EHS that are candidates for reform and using the Green Budgeting methodology to assess new expenses to prevent new EHS from being created. 

To learn more about the reform process in France and other Member States read the country case studies and factsheets compilation.