President Hollande One Year On - What’s next? An Analysis from APCO Worldwide in Paris

7/30/2019 President Hollande One Year On - Whats next? An Analysis from APCO Worldwide in Paris

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1 2013 APCO Worldwide Inc. Tous droits rservs

This is the latest edition of Political Snapshots, a news bulletin first produced by APCO Worldwide in Paris for the 2012presidential election. As always, our objective is to offer an informed analysis of the political and economic situation theissues at stake, the measures we can expect and associated timeframes. It seemed timely to issue a new bulletin to markthe anniversary of the governments first year in office. You will find below a general analysis followed by a more detailedassessment, intentionally focusing on a few key policies and sectors. We look forward to your feedback and comments.

PART ONE: PRESIDENT HOLLANDE ONE YEAR ON - WHAT HAPPENS NEXT?

After a year in office, the president and his government are facing an increasingly worrying economic situation and surveysreveal very low levels of public confidence. Under pressure from the European institutions, significant reforms need to belaunched in the coming months in order to achieve the targeted 60 billion savings in public spending. These include reformof pensions, professional training, unemployment benefits, civil service restructuring and regional budget capping.

Mixed Results in a Difficult Economic Environment

Judged on the facts, 14 of Hollandes 60 election campaign promises have been delivered and commitments made on afurther 27, which is why - on the economy and employment - the president now claims that t he tool box is in place andshould deliver results. As shown in our overviews of promised measures and reforms in key sectors below, the governmentcan congratulate itself on some real achievements with economic measures such as the passage of a law to secureemployment, the creation of a public investment bank to promote SME growth and special efforts to reduce corporation taxesto help businesses to invest of which the most noteworthy is the CICE (Tax Credit for Competitiveness and Employment).However, projects are still in progress in a number of other key fields such as energy (focus sector 4 below) and the digitaleconomy (focus sector 2 below).

While he faces doubts and critics, and while his double promise to reduce unemployment and the public deficit to under 3%by 2013 had to be revised, President Hollande confirmed at his recent press conference in May that he will keep to the

direction he has set, with no change in orientation. The governments focus will be on employment with the creation ofemplois davenir (jobs with a future), contrats de generation (to pass on knowledge between generations) and above all, a 10-year investment plan for the following industries the digital economy, energy, major transport infrastructure and healthcare financed through partnerships with the private sector, foreign capital and foreign investment funds.

There are, of course, several significant challenges facing Hollandes government. These include:

The government now has limited room for maneuver due to strong budgetary and economic constraints .Faced with public anxiety over growing unemployment the historic 5 million milestone was passed in March 2013 and the state of public finances, plus the recent announcement that France has gone into recession, there seemslittle room for maneuver over the coming months.

The governments majority relies on a very fragile consensus. This is a major challenge for President Hollande.

Whether on the economy or taxation, the rift between social democratic colleagues and a socialist left is felt at everylevel of the government. This is even reflected in the divide between ministers in the same department where, forinstance, at the Ministry for the Economy and Finance we have the social democrat Minister Pierre Moscovici, on theone hand, and Arnaud Montebourg, the Minister of Productive Recovery, who calls for nationalizations, on the other.These differences have also surfaced in parliament throughout the year. Some Bills were challenged by the socialistgroup in the National Assembly or did not make it through the senate, where the government has to rely oncommunist and green party support.

There is uncertainty over the possibility of a cabinet reshuffle. These political differences between the rulingparties also make a reshuffle all the more difficult. Nobody expects a reshuffle in the short-term, but in the medium-


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term there could be a technical reshuffle (possibly at the Ministry for the Economy) or a broader reshuffle tointroduce the reforms required, in particular in view of the 2014 municipal and European elections that are likely to bedifficult for the left.

The government faces a weakened but still tenacious opposition. The UMP (Union pour un MouvementPopulaire) has tried to rebuild since its setback in the 2012 presidential and legislative elections. Although on a locallevel the UMP has won several parliamentary by-elections over the past few months, the fratricide fight for the partylead has left traces and the party still lacks a detailed program. After its historic success at the 2012 presidentialelections, the National Front is just waiting to benefit from the governments failings and is preparing for the 2014municipal/European elections, which should see the opposition parties gain ground once again.

2014 will undoubtedly be a crucial year not only for France but also for the wider European Union. A new majority reinforcedor renewed will be in place in Germany following the elections in September; the UK is likely to try to negotiate some powersback from the EU; and Greece is to take over presidency of the EU, followed by Italy, which could lead to a review of certainbasic economic and monetary policies. In addition, the new system of qualified majority voting will come into effect under theprovisions of the Lisbon Treaty. In France, the European parliamentary elections in June 2014 could spotlight extremistparties that reject the constraints imposed by Brussels. President Hollande will continue to need support from his partners inSouthern Europe to change European economic policies surrounding issues such as a European debt agency, newinvestment in future growth sectors and in research and banking union, all of which are on the June 2013 Summit agenda.

While during his press conference on 16 May President Hollande announced his intention to create a European economicGovernment, together with a European loan, the implementation of these proposals to address the economic crisis inEurope remains dependent on Germanys cooperation. The opposition between Germany, which believes that Europe needsan austerity policy, and France, which supports a reflation policy, continues to generate tensions between the two countries.

Facing a very heavily overdrawn trade balance, President Hollande did undertake some trade visits to emerging economiessuch as Brasil, Russia, India and China during his first year in power, as he sought to encourage new markets for French

companies. If results were not always as positive as he might have hoped, Hollande remains focused on a prominentprogram of French economic diplomacy.

As the negotiations for a free trade agreement between Europe and the United States are scheduled to soon begin - with aplanned launch during the G8 summit in Northern Ireland at the end of June - France is determined to makes its partners inEurope push for the defense and cultural goods sectors (notably audiovisual) to be excluded from the EU negotiationmandate. However, even if France succeeds already in rallying as many as 13 EU member states to its request, the UKremains strongly opposed to this position.

The timeline overleaf sets out both the key domestic and international milestones that will shape the second year ofHollandes government.


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PART TWO: BUSINESS SECTOR FOCUS

FOCUS 1 - BUSINESS TAXES: WHAT BALANCE BETWEEN PROMOTING GROWTH AND BUDGETCONSTRAINTS?

The need to rebalance Frances budget and the decision to increase certain expenditure in an unfavorable economic climatehas led the government to increase taxes. Over13 billion of the 30 billion in additional tax revenue generated in 2013 willcome from business tax rises. Policy over the past year has focused on protecting small, medium and very small businesses,in particular by shielding them from the tax increases voted during the 2013 budget and by reducing their labor costs by up to

20 billion a year, through the Tax Credit for Competitiveness and Employment (CICE) which offers credits based on thenumber of people they employ. This flagship measure of the governments Competitiveness Pact took effect on 1 January2013. Many observers have commented that the CICE is over-complex and believe that it will only make taxation moredifficult to understand, and less transparent and attractive for businesses and foreign investors in particular.

Overview of Promised Measures and Reforms*

Campaign Promises Current Status

To reorganize business taxes basedon the size of the company and raiserates for the largest companies

Abandoned in favor of removing certain tax breaks for the largestcompanies.

To simplify SME access to TaxCredits for Research (CIR) (30percent of expenditure)

Introduced under the 2013 budget.

Note: The Enforcement Decree for Tax Credits for Innovation (CII),

which can extend the Tax Credits for Research by a further 20 percent,

are still pending and are scheduled for the fall of 2013.

To tax personal income over 1million at 75 percent

Ruled out by the Constitutional Council but a debate has started ontransferring this tax to businesses.

To maintain the standard rate of VATat 19.6 percent

Abandoned in favor of increase of VAT rates (5 percent, 10 percent,and 20 percent) with effect from 1 January 2014. These rises are

designed to part finance the CICE.

The CICE is a flagship measure of the governments CompetitivenessPact which came into effect on 1 January 2013. It amounts to areduction in employer contributions for businesses that invest inrecruiting staff, research and innovation. The system will gradually beextended (10 billion in 2013, 15 billion in 2014, 20 billion in 2016 andso forth.

To reward businesses that invest in

France and penalize delocalization

Introduced (new tax measures penalizing businesses that transfer their

assets or HQ 2012 Amended Finance Law).

*Ecology and digital economy taxes are covered in the sections below on Energy and Digital Economy.


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Whats the Tax Outlook for Businesses?

New measures to help entrepreneurs? The government promised to define a simpler legal and fiscalframework including better conditions for the sale of businesses, investment by large groups in young SMEs andimproved financial participation. Other measures to help entrepreneurs will reward investment risks by eliminatingthe blacklisting of businessmen following a single bankruptcy, making it simpler for entrepreneurs to venture intoforeign markets through international umbrellas and the creation of entrepreneur certification for internationalprojects. Small, medium and very small businesses receive particular assistance through a reform of companyshare savings schemes; businesses that support social causes or solidarity receive support through the creationof a social innovation fund at the Public Investment Bank; and start-ups will obtain help through the extension ofthe Young Innovative Business (YEI) status. Employers have welcomed these measures as encouragingentrepreneurial spirit.

Will businesses have to pay 75 percent tax on high salaries? Tax at 75 percent on personal income over onemillion Euros was the emblematic promise of Hollandes election campaign and led to heated debate beforebeing ruled unconstitutional. President Hollande then voted in favor of a tax payable by businesses rather thanindividual taxpayers. This would mean that businesses would be taxed at 75 percent on the percentage share ofemployee remuneration over and above one million Euros for a period of two years. The government plans topresent this measure as part of its Finance Bill this fall. It would generate revenue of around 500 million butwould only concern around 1,000 individuals. This is above all a symbolic measure during a time of crisis and itlets the government maintain the 75 percent promise in the eyes of the electorate. Described as a businessdeterrent by the MEDEF (French Employer Federation), it could discourage foreign businesses from openingoffices in France. The introduction of this tax promises to continue to be the source of lively debate.

A European Tobin Tax? While the French financial transaction tax introduced on August 1 led to a fall in thenumber of transactions carried out on the Paris exchange and only brought in half of the expected revenue(around 800 million in 2013), France continues to lobby for a new European -level tax on financial transactions.This could take effect from 1 January 2014 and would cover a much broader base than the existing French tax. Itwould encompass all transactions involving shares, bonds and derivative products. Six French professionalassociations including the French Banking Federation (FBF) and Paris Europlace have condemned the initiativeas likely to have devastating effects. The European Commission estimated that it would cost France 7 billion,while French commentators put the figure at closer to 70 million. The debate is far from over as the 11European countries in favor of increased cooperation have yet to find common ground for agreement on thisissue.

New taxes on consumer behavior? The principle of taxing consumer behavior is beginning to gain ground inpublic opinion. A senate committee on the assessment and control of social security expenditure is currentlystudying the application and effectiveness of taxation in influencing consumer behavior. So, while new nutritional

tax measures could be introduced in budget legislation in the fall, its also worth remembering that the tiered VAT(5 percent, 10 percent, 20 percent) introduced in late 2012 will also come into effect on 1 January 2014. Apotential review of the products and services in each of these new VAT categories is currently underconsideration and might also be a new way of taxing certain product categories regarded as unhealthy. With billsalready announced and more expected (2014 budget bill, consumer bills, bills for the future of agriculture andfood & drink industry and public health bills to name just a few) there is a packed legislative calendar ahead,especially for the food and drink industries.

The stability program (a budget roadmap for the next three years, 2013 2017), presented by the French government tothe EU Commission on April 20, emphasizes above all how little room there is for maneuver on budgets - and this isdespite being given an extension to 2015 by Brussels to bring the French deficit under the 3 percent bar. So, after amajor tax increase in 2013, budget reductions in 2014 are due to focus on reducing public expenditure (by two thirds) andincreasing new tax revenue (by one third). As far as taxation is concerned, compulsory contributions will climb to 46.3

percent of GDP in 2013 and reach a record high of 46.5 percent in 2014.


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FOCUS 2 THE DIGITAL ECONOMY: FERTILE GROUND FOR REFORM

A key objective of the government's policy over the past year on promoting the digital economy is to help small, mediumand very small businesses catch up in terms of information technologies and to introduce very high speed internetservices across the country. Work is being carried out to identify potential new sources of finance to achieve thisindustrial, economic and societal challenge. In the face of the ever-increasing power of the Internet and social networks,the government also intends to provide better protection and finance for cultural institutions and intellectual property toreinforce user rights and to encourage the emergence of national champions in digital technologies. The next fewmonths should see several legislative and tax proposals designed to help achieve these aims.

Overview of Promised Measures and Reforms

CampaignPromises

Current Status

To support thedevelopmentand release ofdigitaltechnologies

In progress: in its digital roadmap presented on 28 February, the government announced aprogram to help small, medium and very small businesses to adopt digital tools through a 300million loan budget allocation under the aegis of the Public Investment Bank. A further 150million in aid will be issued for researching and developing future investments to support thefollowing strategic technologies: built-in software; connected and intelligent devices;information system security; intensive calculations and simulations; cloud computing and bigdata; and to create new digital champions. The government also intends to increase thenumber of young people with qualifications and training in digital skills by at least 3,000 peryear by 2017.

To equip theentire nationwith very highspeed internetservice within 10years

In progress: on 20 February 2013 President Hollande announced that 20 billion of privateand public funds would be invested in equipping France with very high speed internet servicesby 2022. Nearly half of the population should have access to these services by 2017.

To achieve abetter balancebetweenprotectingauthors rightsand onlineaccess tocultural works

In progress: the French president received a report on adapting cultural policies to the digitalera on 13 May 2013

1. It aims to guarantee royalties for authors and increase the financial

participation of those involved in the digital world. Some of the 80 recommendations include: Closing Hadopi (the Authority responsible for introducing sanctions against online piracy);

a graduated response will be maintained and managed by the Audio-visual Council. ThisAuthority would take over responsibility for introducing sanctions against illegal downloads.

Introducing a very smalltax on connected devices (such as smartphones, tablets andconnected television sets) that would replace the tax on private copieswhich is beingphased out.This tax would be used to finance a fund to support the cultural digitaltransition.

Aligning VAT rates for goods or services, regardless of whether the goods are distributedphysically or online.

The Ministry of Culture announced that it would discuss these issues with the key partiesconcerned.

1Consultation on digital content and the cultural policy for the digital era led by Pierre Lescure.


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Whats the Outlook for the Digital Sector?

Digital taxation: new taxes? Based on the assumption that the leading digital economy businesses (such asGoogle, Amazon, Facebook and Apple) do not pay tax in proportion to the profits they generate in France, theFrench government wants to introduce a specific taxation on the digital economy as part of the 2014 FinanceLaw (rather than wait for the conclusions of G20 and OECD studies). Several possibilities are being considered.

Two come from the Colin & Collin2

January 2013 report: to promote a new definition of permanent

establishment at OECD level to allow states to tax profits generated in their countries by digital businesses; andin the interim period to create a tax based on use of data derived through regular and systematic monitoring ofuser activity in France. Other possibilities under consideration by the government include taxing onlineadvertising, e-commerce or bandwidth. The government is due to take a position this summer, following thepublication of an opinion by the National Digital Council. Its current consultation process will run through to theend of June 2013. Lastly, the measures proposed in the Lescure report are currently being analyzed by the

various Ministries concerned and initial decisions are due to be taken in June 2013.

Online privacy laws: following a government seminar on the digital economy on 28 February, Prime MinisterJean-Marc Ayrault announced that new measures to reinforce the protection of personal data would bepresented to parliament by 2014 at the latest to protect internet users. This would involve updating the 1978Data Protection Act for the social network era. The CNIL (the authority responsible for personal data protection)will be granted greater powers. However, this initiative would take into consideration EU regulations currentlyunder development and due for introduction before the 2014 European elections in May.

Net neutrality: the CNN (French Digital Council) recommendations published on 12 March 2013 outlined theneed to introduce legislation on net neutrality. Fleur Pellerin, Minister for the Digital Economy, announcedproposed legislation on this issue. According to the CNN, freedom of expression is not sufficiently protectedunder French law following the growth of filtering, blocking, censorship and bottlenecks. The CNN recommends

that the principle of neutrality is upheld not only by Internet Service Providers (ISPs) but also by all services thatprovide access to information (search engines, social networks or mobile applications). However, someexceptions may be made and Fleur Pellerin emphasized that international discussions will also be required toidentify common denominators.

Cyber security: raising security levels and providing greater resources for protecting information systems is alsoa government priority. The White Paper on Defense and National Security published on 29April 2013recommends introducing an appropriate public purchasing policy for equipment providers (telecom routers, etc)and outsourcing contracts with private companies. Businesses are worried that this notification requirementcould damage their reputations. The government is apparently in the process of preparing a Bill on cyber securityand operators of vital importance in an attempt to reinforce business security requiremen ts and to make itcompulsory to report any major network incident.

2Report on digital economy taxation, published in January 2013


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FOCUS 3 INDUSTRIAL AND EMPLOYMENT POLICY: THE KEY MEASURES ARE YET TO COME


The promised measures are part of the tool box put in place by the government to reverse the unemployment trend bythe end of 2013. However, this promise is jeopardized by France's slide into recession. The reforms already introducedhave not yet produced results and have not managed to slow the deterioration of the economic situation. Among theissues that must be addressed to win the employment battle, some observers underline the need for a consistent and

clear approach in government policy towards companies. While Hollande clearly stated at the beginning of his presidencythat his objective to make companies more competitive, (by trying to reduce production costs and decrease social and taxcredits) he had to negotiate several times with the left wing of his coalition. These negotiations resulted in what somecommentators consider confusing, if not contradictory, signs for businesses and included proposals to nationalize anindustrial site, as well as recently proposed legislation regarding the closure of industrial sites. Today certain reformsintroduced at the instigation of employers could destabilize the governments alliance with its far left partners. The reformof pensions, which will dominate the second social conference of 20 and 21 June, is another issue by which thedetermination and room for maneuver of the French government will be measured.

Campaign Promises Current Status

To create a Business Investment

Bank (BPI) to promote small,medium and very small businessgrowth (N1)

Introduced in December 2012. The Business Investment Bank has been given

funds of 42 billion, which it plans to invest in 1000 businesses in 2013.

To create a contrat degeneration (to pass onknowledge between generations)(N33)

Introduced in March 2013. This measure provides businesses with financialincentives to employ a young job seeker who will be mentored by an oldermember of staff. The objective is to create 500,000 new jobs during the nextfive years.

To create emplois davenir(jobs with a future) (N34)

Introduced in October 2012. This measure is designed to provide young,unemployed and unqualified job seekers (16 25 years) with apprenticeshipsand training. It will focus initially on the non-retail sector and then on retail at a

later date. The objective is to create150,000 new jobs by 2014.

Obliging large firms who wantto close a production unit to firstseek a buyer (promise fromCandidate Hollande to theemployees of Arcelor Mittal atFlorange in 2012)

A bill introduced by the Socialist group at the National Assembly to forcemanagement who want to close a production unit to look for potential buyerscould be discussed before the summer recess: it would apply to groupsemploying over 1,000 people, and includes provisional plans for significantfinancial penalties if the companys efforts to find a buyer are weak.


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Whats the Outlook for Industrial and Employment Policy?

Legislation on employment security: new regulations on company restructuring. Adopted on 14 May this lawaims to establish a fair balance between competitiveness (for businesses) and employment security (for employees).It gives businesses greater flexibility and establishes new rights for employees (such as wider access to healthinsurance and topping-up of unemployment benefit rights etc). It extends guarantees to both employers andemployees. Employees will enjoy advantages such as extended retraining leave and employee representatives oncompany boards, while businesses will benefit from measures to prevent recourse to an Employment Safeguard Plan(PSE). (A PSE typically includes regulations to encourage more internal redeployment of staff, so that restructuringplans involve fewer lay-offs; and agreements to maintain employment, including the possibility of establishing anagreement with the unions to reduce working hours or pay if the company encounters serious difficulties.) In addition,where Employment Safeguard Plans cannot be avoided, new safeguards will be introduced (new procedures andimplementation). This law was adopted, despite opposition from left wing MPs who considered it too pro-employer.

Some measures will apply from this year and others will only come into effect in 2014. This law is based on anexisting agreement between businesses and the largest trade unions.

Legislation on the closure of production units (Florange Law)? The Bill presented in late April by the socialistgroup to parliament (National Assembly) could be debated before the summer recess. It follows a campaign promiseHollande made as a presidential candidate during his visit to the Arcellor Mittal site at Florange in 2012. Thisproposed law introduces a preventive clause and would apply to groups with over 1,000 employees, wanting to closeone of their sites. Management would be obliged to inform the Works Council and look for a buyer for three months.The Works Council would have the right to appeal to the Court of Commerce if it believed that management were notcooperating and the court could impose financial penalties that would be sufficiently high to act as a deterrent. At thisstage, there is little likelihood that it will be successful since the trade unions have been unenthusiastic and insteadhave been calling for legislation to nationalize sites. These calls for nationalization have, in turn, been opposed bymanagement who regard this policy as the antithesis of the measures announced in favor of businesses.

What issues will be debated at the second Social Conference? The second Social Conference of thePresidency is scheduled for 20-21June. Whereas the first conference in 2012 focused on reforming the employmentmarket, the issues this time (the agenda has not yet been finalized) promise to be just as contentious: pension reform,professional training, the future of public services, productive employment and purchasing power. As far as pensionsare concerned, a list of possible reform scenarios is due to be discussed with social partners who are already stronglyopposed to some of the proposals - in particular any increase in the retirement age - whereas businesses are pushingfor a longer contribution period. The respective positions of the various social partners make these issues all themore difficult. As Laurence Parisot, the current president of the main Employer Federation (Medef) has to takestatutory retirement, the election of a new president in July will likely take the federation in a new direction. As for theunions, they are far from presenting a united front and an increasingly wide gap is growing between the CGT andother unions (in particular CFDT).

What are the industrial policy priorities? The government is taking a sector-based approach to industrial policy withthe creation of a National Industry Council (CNI) to bring industry and unions together at national level. Its activitiesare divided into a dozen sector committees (automotive, aeronautics, railways and shipping, eco-industries, food anddrink industries, nuclear, digital, health care, consumer goods, chemistry and materials, fashion and luxury goods).Their objective is to establish individual sector contracts and to eliminate any legislation that is more stringent thanexisting EU standards. In addition, the government announced a 10-year investment plan in May 2013 financed inparticular by the sale of non-strategic state shareholdings in certain groups. With an estimated value of 10 billion,this plan focuses on new technologies, promising future sectors (digital, energy transition, healthcare and majorinfrastructures) identified by the CNI and the Innovation 2030 Commission set up in April, comprised of industrialists,scientists and economists. Lastly, from 2013 - 2017 the Public Investment Bank plans to provide 9.2 billion in directbusiness investments and 2.7 billion through contributions to special investment funds.


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FOCUS 4 - ENERGY: A LIMITED REVOLUTION AHEAD

As far as energy policies are concerned, changes are in progress. Everything now depends on the conclusions of thenational debate on energy transition and the Energy Planning Law due for introduction in fall 2013. What will be theextent of this energy transition? The flagship measure is expected to be the reduction from 75 percent to 50 percent ofthe nuclear share in the electricity mix - which is an evolution, albeit a limited one. Although nuclear accounts for themajority of electricity consumption, it only accounts for 17 percent of total energy consumption, far behind oil and gas thathave a 40 percent and 23 percent market share respectively. The focus will undoubtedly be on gas until renewables are

available in sufficient quantities and competitive prices.


CampaignPromise

Current status

To reduce thenuclear share inFrances energymix from 75percent to 50percent by 2025

Ongoing: the government is assessing several different options. These including extendingthe life of existing reactors until the new EPR reactors are commissioned and theprogressive and conditional reduction of the share of nuclear electricity generation. Also, forthe first time, the debate on energy transition includes suggestions that nuclear generationcould be completely abandoned.

To developrenewables

Ongoing: renewables are an integral part of the debate on energy transition. Somemeasures have already been implemented:

Wind: two tenders have been issued for 3000 MW and a third is under consideration.Measures have also been taken to support the industry. These include it no longer beingnecessary to belong to a wind power development zone, the creation of wind parks inUpper Normandy and the Loire, and the introduction of a rate for buying in foreign windpower.

Solar: the objective set by the environmental conference is to double solar energyproduction in France in 2013 (from 200 to 1000 KW). Measures include launching a tender

to encourage development of larger solar parks; subsidized purchase prices based onequipment origin; and capping the annual decrease in purchasing prices at 20 percent.

Biomass/Geothermal: heat funds have been extended, an enquiry into creating a wood-carbon fund as part of a national wood industry committee and a nitrogen-methanizationplan have been launched.

Wave power: a project to build demonstration wave power units has been initiated.

To reduce energypoverty byintroducingprogressive tariffs

for gas andelectricity

Rejected: proposed legislation (the so-called Brottes law) on sliding scale rates wasadopted on 11 March 2013 by parliament (National Assembly). It envisaged abonus/penalty system on electricity, natural gas and district heating invoices in order toencourage customers to reduce their energy consumption. However, it has just been

quashed by the Constitutional Council as a breach of equal access to public services.


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Whats the Outlook for Energy Policy?

New Energy Planning Law: This energy planning bill will comprise 5 key elements: improving energy efficiency,defining the energy mix for 2015, supporting the development of renewables, financing the energy transition andimproving governance. The consultation on the national energy transition debate closes in May. Conclusionsand recommendations will be developed in June and July and will be closely monitored by interested parties.

Renewables - a clear priority, but in need of finance : The government has publicly declared its support forrenewables and President Hollande used his press conference on 16 May to announce that he wanted it to be apriority for a European Energy Community. Working groups on the national energy transition have alreadyconsidered flagship measures that include encouraging the use of renewables. These include tripling the targetfor photovoltaic energy generation by 2020 (from 5.4 GW today to between 15 and 20 GW), fixing clearobjectives for hydroelectricity, support for using efficient and sustainable biofuels in place of fossil fuels, or

securing the legal status of the onshore and offshore wind power industry. However, the development ofrenewables will be expensive particularly in view of current budget constraints. The Public Investment Bank isofficially responsible for supporting the energy transition and will be called upon to do so. President Hollande alsoannounced that he wants to devote part of the 10-year investment plan (to be announced in June) to energytransition industries. We can expect security for renewables to be provided by the introduction of new ecologicaltaxes, in particular by modifying or extending the CSPE (contribution to electricity public services) a tax paid byend electricity users. It is felt that this tax doesn't provide sufficient revenue at the moment but any reform wouldbe opposed by electricity-intensive industries currently exempt above a certain threshold, and smaller high-energy consuming businesses currently seeking exemption to reduce their costs.

The unknown gas factor: the government has rejected, as announced, the seven existing applications forshale gas and hydraulic fracturing (or fracking) permits over the past year. However, in early 2013 theParliamentary Office for Assessing Scientific and Technological Decisions (OPECST) was commissioned toprepare a report on unconventional gas and research, among other issues, based on international analysis andbenchmark, and alternatives to hydraulic fracking. The report is expected for October 2013. It should providerecommendations for other types of unconventional gas worth developing.

Considerations on how to realign energy taxation on the environment: the 2013 Finance Law has alreadyapproved an increase of the tax on activities that generate pollutant atmospheric emissions (TGAP). Thegovernment wants to reduce the tax concessions for diesel over gasoline in 2015. This measure follows thepublication of a number of studies that highlight the health risks presented by the fine particle emissions fromdiesel. Diesel accounts for 80 percent of French fuel consumption and cutting the tax concessions on diesel ispolitically controversial, particularly in times of economic crisis. A carbon tax on all products that emit greenhousegases (gasoline, gas, heating oil) is being considered, but President Hollande has abandoned other furtherpossible tax rises or new taxes in 2013 and 2014 due to economic and political developments. The issue could

resurface under pressure from NGOs and civil society following parliamentary discussion of the Energy PlanningAct. Unusually, some of these organizations, (such as Friends of the Earth and Greenpeace) boycotted thenational debate on energy transition. This tactic was likely adopted to strengthen their hand to exploit anyweaknesses in the resulting recommendations and to push, instead, for new proposals in the future. When itcomes to the vote on any new legislation, these NGOs and civil society groups will certainly be able to rely onsupport from some ecologists in the senate.


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ABOUT APCO WORLDWIDE

Founded in 1984, APCO Worldwide is an independent global communication, stakeholder engagement and businessstrategy firm with offices in more than 30 major cities throughout the Americas, Europe, the Middle East, Africa and Asia.

We challenge conventional thinking and inspire movements to help our clients succeed in an ever-changing world.Stakeholders are at the core of all we do. We turn the insights that come from our deep stakeholder relationships intoforward-looking, creative solutions that always push the boundaries of communication. APCO clients include largemultinational companies, trade associations, governments, NGOs and educational institutions. The firm is a majoritywomen-owned business.

APCO was established in France in 1996 and our Paris team is available for an in-depth and targeted analysis ofupcoming French political milestones and their impact with regards to corporate economic governance and international

relations.

For more information, please visit www.apcoworldwide.com orwww.apcoworldwide.com/french
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President Hollande One Year On - What’s next? An Analysis from APCO Worldwide in Paris