The Political Economy of Water Effluent Charges in France: Why are Rates Kept Low?

The French water effluent charge was set up thirty years ago. However, its design differs significantly with the Pigovian tax envisaged in economic textbooks. In particular, various studies have shown that the tax rate is too low to significantly affect the polluters' behaviour. The paper is a case study of this charge and aims to understand why rates are low. It consists of a careful political economy analysis of the institutional setting through which the water effluent charge is implemented using both historical evidence and simple modelling. The fact that the charge is combined with regulation plays a crucial role in explaining its rate.