Will there be a minimum price on carbon in Germany? And how?

Some countries such as the UK, Sweden and Switzerland already have their own tax on CO2. Whether Germany follows suit remains to be seen. [aapsky/ Shutterstock] [aapsky/ Shutterstock]

In Germany, calls for introducing a CO2 emission tax are getting louder. Yet, the German government continues to be divided on the matter, with the French ‘gilet jaunes’ appearing to be quite the deterrent. What would a socially acceptable price on carbon look like? EURACTIV Germany reports.

Climate researcher and head of Mercator Institute, Brigitte Knopf, highlighted during the Berlin Energy Transition Dialogue that the cost of CO2 in Germany should be introduced with a fair distribution mechanism.

“Should there be a price on carbon, it must, in any case, have public support,” Knopf told EURACTIV. According to her, one possibility would be to distribute state revenues from the trade of CO2 directly to citizens.

The debate on whether a minimum carbon price should be introduced has become more intense in Germany. Many experts see this as an efficient instrument to reach the climate goals laid out in the Paris Agreement.

While Economy Minister Peter Altmaier of the Christian Democratic Union (CDU) spoke against this for a while, his ministry stated last week that the issue of CO2 pricing should be examined.

Chancellor Angela Merkel (CDU) was also “very open” to the idea, Environment Minister Svenja Schulze from the Social Democratic Party (SPD) said after the first ministerial session on Wednesday (10 April).

Climate scientists have long been pushing for the introduction of a European-wide minimum carbon price, but so far solutions have only been found at member state level.

If no transnational solution can be found, Germany could add a price premium to the already existing EU Emissions Trading System (ETS), with which emissions in the EU are regulated in the energy sector. The UK could serve as an example for this as it has had a similar model since 2013, according to Knopf.

“With this, we could be better prepared for sinking prices on the ETS market.” To promote an EU-wide model, there is also a need for strengthened cooperation between France and Germany and more dialogue at G20 level.

Policy change for the German government?

Although there continues to be disagreement about Schulze’s planned climate protection regulation, the idea of a minimum price on carbon seems to be gradually gaining support.

Just before the climate commission’s first session, Finance Minister Olaf Scholz published his own energy policy this week entitled “Energiekonzept 2019”, in which he backed Schulze, his party colleague and advocate for a price of CO2.

CDU leader Annegret Kramp-Karrenbauer, who rejected key points of the climate protection regulation so far, also showed she was ready to discuss the matter at an event in February. The issue of a carbon price is “right up there” on her agenda.

Whether the climate cabinet will decide in favour of pricing CO2 remains open. German Transport Minister Andreas Scheuer of the Christian Social Union (CSU) continues to oppose this. Public pressure is strong, however, as the youth movement Fridays for Future is urging the government to act immediately.

The fact that Chancellor Merkel formed a climate cabinet is already a positive development according to climate researcher Knopf:

“Merkel finally declared this issue one of top priority. I think that she is turning back to her climate legacy. All we need is a word of command on her part since Environment Minister Schulze will not be able to make herself heard alone with opposition coming from within the government.”

During discussions on what model would best suit Germany at the Berlin Energy Transition Dialogues, experts compared examples from Switzerland, Québec and California.

In Switzerland, a non-EU country, CO2 has been taxed since 2008 and the price of a ton of carbon dioxide is currently at €90. By comparison: in the ETS-system, the price of a ton is currently valued at €24. Revenues are distributed among all Swiss citizens, who each received about €80 last year.

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In California, a different model was chosen. Half of the revenue from CO2 emissions has been distributed across areas with a poorer population structure.

“It is all about efficient fund distribution, meaning it flows to where it has the most added-value,” said Robert B. Weisenmiller, former head of the California Energy Commission during a debate.

The California carbon market is like those set up in the Canadian provinces of Ontario and Québec. There, revenue from the carbon market flows into projects that aim to improve infrastructure, public transport and energy efficiency, thus supporting structural change in disadvantaged regions.

Mercator Institute’s Knopf defined five possible ways to offset the price of carbon:

Direct transfers like the Swiss model, a reduction of the corporate tax for CO2-saving companies, investment in low-carbon technologies, targeted aid for structurally poor regions and financial support for companies that operate internationally, such as the steel and aluminium sectors.

It is now up to climate ministers to find a way for Germany to reach the targets from the Paris Agreement. The decision on whether and how a carbon price should be introduced will be made this year, according to Environment Minister Schulze.

[Edited by Zoran Radosavljevic]

Further Reading

Gas, a prominent guest at German energy transition event

As Germany is gradually phasing out nuclear and coal energy, Berlin is increasingly considering gas as key in bridging the gap between a fossil-fuels based and a low carbon economy.

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