France to Temporarily Cut Fuel Tax as Seeks Longer-Term Plan

France will temporarily cut tax on oil products to lower fuel costs at the pumps as the government seeks a longer-term plan to curb prices after President Francois Hollande pledged a three-month freeze during elections in May.

“It will be a unilateral measure to lower the state’s share” of revenue, Prime Minister Jean-Marc Ayrault said. It “will lower the price of fuel, in particular the tax portion.” The cut will be “modest and temporary” while the government devises a new system to regulate prices, he told RMC radio.

The cost of diesel, about 80 percent of the market, is less than 1 cent below the record 1.454 euros a liter (about $6.85 a gallon) reached May 30, 2008, the Union Francaise des Industries Petrolieres said on its website. A 1 cent-a-liter tax cut would cost the state an annual 500 million euros, the lobby said.

Parliament last month voted in a one-time charge on fuel inventories that will cost refiners and other holders of stock 550 million euros this year, according to the industry group. Hollande vowed during election campaigning to ease the burden of higher energy costs on consumers by imposing a price freeze.

New regulation will probably cut the state’s tax take and seek a contribution from refiners and retailers, Ayrault said, declining to confirm whether prices would still be frozen.

Fossil Fuels

“If you freeze the price for three months and then prices rise afterwards, you haven’t solved any problem,” he said today. “If we’re looking into the future, prices of fossil fuels will increase, so we need alternative solutions.”

France hasn’t decided whether to allow development of shale gas after an earlier ban, Ayrault said. “We have to put all the different solutions on the table” that don’t pollute, he said.

The country last year banned a process called hydraulic fracturing, or fracking, needed to extract fuel from shale rock.

Since Hollande was elected on May 6 debate has reignited between supporters and opponents of domestic exploration for shale resources. Fracking will be discussed on Sept. 14 and 15 at an environment policy conference organized by the government.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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