* State auditor launches French diesel tax rise debate
* Could help refiners offload gasoline surpluses
* Carmakers, farmers, likely to prove reluctant
By Marion Douet
PARIS, March 6 (Reuters) - A possible rise in taxes ondiesel in France to bring it into line with gasoline priceswould provide a welcome shot in the arm for French refineriesstruggling with overcapacity, experts say.
The move proposed by the government's auditor last week andsupported by the French environment minister would likely runinto the opposition of France's diesel-specialist carmakers andvocal professions such as farmers and truck drivers.
But for the strategic refining sector, which has sufferedfrom the drop in fuel consumption in Europe and lower exports toits traditional U.S. market because of the shale gas revolution,a cut in France's heavy reliance on diesel could prove a boon.
France's diesel imports account for 10 billion euros ($13.03billion) of the country's gapping 61 billion euro energydeficit, while it produces too much gasoline it struggles toexport, Jean-Louis Schilansky, head of the UFIP oil lobby said.
"Every cubic metre of gasoline that we would sell in Franceinstead of exporting it would add more profitability torefineries," Schilansky added.
Diesel accounts for 80 percent of road fuel consumption inFrance, supported by lower fuel taxes compared to gasoline. Onelitre of diesel costs 1.42 euros on average in France whilegasoline costs 1.62 euros, both below the European average,according to European Commission data.
Like in other European countries, diesel has been favouredon the basis that it offers greater fuel efficiency and lowercarbon emissions.
But this predominant role has been questioned after theWorld Health Organisation said last year that diesel fumes cancause cancer.
France's eight remaining refineries still producing - downfrom 23 in the 1970s - are mainly geared towards gasolineproduction.
The high reliance on diesel of the French car fleet hasmeant that when the U.S. export market dried up, Frenchrefineries could not count on their domestic market as analternative, hitting margins and leading to closures such as inReichsteitt near the German border and Dunkirk in the north.
The Petit-Couronne refinery of insolvent Swiss firmPetroplus has been fighting for survival for more than a year,and the government is keen to avoid its 470 workers being laidoff as a wave of highly-publicised job losses hit itspopularity.
"I wouldn't go as far as saying that it could savePetit-Couronne," said Francis Perrin, head of the EnergyPolicies and Strategy group of publications.
"But it's obvious that a (rebalancing toward gasoline) wouldbe a plus, because refineries were conceived and built at a timewhen the main challenge was to produce more gasoline," he said.
Oil major Total, Europe's largest refiner, stillowns 5 refineries in France while Exxon Mobil owns two,one in Normandy and one near Marseille and England-based Ineos owns one.
Dutch group LyondellBasell also has one mothballedsite near Marseille and is struggling to find a buyer.
BLOCK THE COUNTRY
A rebalancing towards gasoline is likely to take yearshowever, and the government said no decision would be takenbefore a committee on environmental tax policy submits proposalsin the coming months, after which the government would includeany measures in France's 2014 budget bill.
"There will be a certain inertia, to invert the consumptionmix you will need a good 10 years," Charles Foulard, CGT unionrepresentative for Total said.
The government would also have to sweeten the deal forcarmakers such as Peugeot, a self-proclaimed worldleader in diesel technologies, at a time when the French groupis battling with lower European sales and record losses.
"We are absolutely convinced that (diesel) is a motorisationwith a future," Frederic Saint-Geours, brand director at PSAPeugeot Citroen, told reporters at the Geneva auto show thisweek, declining to comment further on the government's plans.
Another stumbling block could be the impact of any tax riseson heavy diesel consumers, especially protest-prone professionssuch as farmers, taxi drivers or truck drivers.
"The justification (for the price gap) was to favour socialor economic groups that a lot of governments fear because theyhave the capacity to make themselves heard or block the wholecountry with strikes," oil policy expert Perrin said.
But the rescue of the refining sector is not the only aim ofthe Socialist government. Potential higher tax revenue fromdiesel at a time it is struggling to cut its budget deficitbelow the EU's 3 percent limit is likely to be a majormotivation.
The lower levies compared to gasoline deprive the state of 7billion euros a year in receipts, state auditors noted in theirreport.
