As of 2021, Germany will put a price on each ton of carbon emitted. In December 2019, the federal government, finally, agreed to initiate a fixed carbon price through a national emission trading scheme (ETS) starting with a moderate price of 25 €/ton in 2021 and reaching as high as 55 €/ton in 2025. This decision was made as part of the major climate protection package, which the government agreed to in November 2019. In the original package proposal, a carbon price of only 10 €/ton was proposed, which was largely criticized by experts and several political parties such as the Greens.
In the original Climate Protection Plan 2050, the government states that prior to the year of 2026, a maximum amount of emissions will be set, decreasing on an annual basis after that year. The affected parties will have to cover their CO2 emissions through certificates outside of the German trading scheme if emitting more than allowed under the national scheme. Hence, from 2026 the carbon price will vary in between a minimum price of 55 €/ton to a maximum price of 66 €/ton. These numbers will then be newly assessed with every following year.
Given that Germany already falls under the EU ETS, the national ETS will run in parallel and a price will be charged to fuel importers and apply to heating oil, liquefied petroleum gas (lpg), natural gas, coal, petrol and diesel. All major sectors such as transport, agriculture, housing and industrial sector will be affected by the new law – to be noted is that the carbon tax will not include other emissions, such as CH4. The housing and the transport sector are responsible for more than a third of Germany’s greenhouse gas emissions.
A short summary of how much, who and what will be prices is shown in the bullet points below:
- 2021: 25 €/ton
- 2022: 30 €/ton
- 2023: 35 €/ton
- 2024: 45 €/ton
- 2025: 55 €/ton
- As of 2026: Auctions starting in a price corridor of 55-65 €/ton
- Fuels for transport (excluding air transport) and heating – petrol diesel, heating oil, natural gas and coal.
- Heating emissions in building sector and of energy and industry facilities that are not covered under the European ETS
- Does not cover non-fuel emissions (eg. Methane)
The acquired income resulting from the new carbon tax is to be reinvested into climate protection support measures or directly back to the citizens through tax relieves or more specific discharges. For instance, employees living at a distance of > 21 km from work will receive a ‘commuter relief’ of 35 cents/l of fuel. Furthermore, the existing renewable levy (Erneuerbare Energie Umlage – EEG) is meant to decrease after the year of 2020 (currently at 6.6 cents/kWh) by 0.25 cents/year. This latter mentioned change is of large benefit to families and households with lower incomes. Other measurements of support can be taken in the individual sectors, such as receiving subsidies when investing in insulation for buildings or when purchasing electric vehicles.
Prior to the endorsement of the climate protection law, criticism was raised by multiple parties. The Mercator Research Institute on Global Emissions, for example, stated that the initial proposed carbon price of 10 €/ton was not going to be effective in addition to that no guaranteed investment could be made, given that the ‘carbon price corridor’ for the carbon emissions in 2027 would only be decided in 2025. Even the car industry raised concern about the effectiveness about the low entrance carbon price. The CEO of VW said in Davos, that he would like to see a higher carbon price to make a transition more attractive.
Finally, it is necessary to mention that in all activities the national ETS will work in parallel with the European ETS. Individuals within the government have mentioned that they are looking into pushing for a European cross-sector price, also in the sectors, currently not covered (agriculture, transport and housing). For more detailed information on the European Trading Scheme (ETS), please see the European Union’s page for more information on the regional ETS program.
Activity Rating: ***Right Direction
The agreement on a national carbon price has long been discussed and considered in Germany’s government. Although late, it is important to introduce such a scheme. It is well received that scientific findings and the most recent natural disasters seem to have an impact on the speed in which the federal government wants to move forward to meet its national Climate Protection Plan 2050. Unfortunately, the starting price of 25 €/ton is not likely going to be enough to change the behavior of individuals, industries and the public sector. Furthermore, it is expected that despite the increase in decision-making in this regard, the agreed packet and national ETS will not be enough to reach the pledges made. The additional subsidies given to commuters is also not advisable, given that more and more people are moving to suburbs of the bigger cities. Instead the direct income from the carbon tax should be redistributed to the expansion of public transport and the creation of new businesses in the countryside.
Message To the Federal Environment Agency
Being the agency responsible for the implementation and monitoring of the carbon price as of 2021, the federal environment agency will require informed and knowledgeable staff. You, as the new president of the Environment Agency needs to take responsibility and push for a faster increase in carbon price and a better reinvestment of the incoming budget from the carbon tax. Rather than reimbursing people, commuting long distances each day, people using public transport or moving away from cities should somehow be subsidized. Germany does not have the time to slowly migrate to a low emission state. Finally, another aspect is that if the carbon price was set to a higher price, it is very likely that coal would no longer be a feasible fuel source to use and the carbon phase-out could be achieved prior to the anticipated 2038.
President of German Federal Environment Agency
Professor Dirk Messner – Action Message Addressee
Wörlitzer Platz 1
Martin Ittershagen (Head of media and public relations and press officer)
Article of VW CEO commenting on carbon price (Autohaus Magazine, retrieved on February 10, 2020
Factsheet on carbon price scheme, summary:
Climate Protection Package – summary.
Federal Climate Protection Law:
This Post was submitted by Climate Scorecard Germany Country Manager Berit Mohr