The German government hopes to ease fears of a sharp rise in heating and electricity prices in the coming winter with its third package of energy cost relief since the start of Russia’s war in Ukraine. The wide-ranging package, worth around €65 billion, includes one-off payments to households, a price brake for electricity, the postponement of a planned increase in the national price for CO2 emissions, a windfall tax and proposals for nationwide discounted public transport fares. Clean Energy Wire reports on the proposal in detail.
While members of the government say that supporting poorer members of society in the crisis is key, businesses complain that the package does not include enough measures to ensure economic stability and jobs that are at risk due to high energy prices.
The energy industry warns that a tax on windfall profits generated during the crisis could hinder much-needed investment in clean energy infrastructure.
After weeks of negotiations, Germany’s governing coalition agreed on a third package of economic relief for households and businesses struggling with rapid inflation caused by Europe’s energy supply crisis. The third package, worth 65 billion euros, is bigger than the previous two combined and will be used to prepare the country for the “difficult times ahead,” Chancellor Olaf Scholz said in a report carried by public broadcaster ARD.
“It’s about getting our country through this crisis safely,” the Social Democrat (SPD) said, adding that the government would take citizens’ concerns “very, very seriously.”
Rising energy prices and their impact on households and businesses have become the biggest concern of German voters, according to recent polls.
Their rapid rise, fueled by Russia’s invasion of Ukraine, is fueling inflation more broadly. While earlier the focus was on high gas and oil prices, electricity prices in Europe began to be strongly influenced by the domino effects from the gas market as well.
Despite the financial difficulties many citizens face due to rising energy prices, Scholz said he does not expect mass anti-government protests fueled by the Left Party and the far-right AfD in the coming winter.
“If some disagree and shout slogans of (Russian President Vladimir) Putin, fine, then some can do that,” Scholz said. Most people would understand the benefits of living in a welfare state with a strong economy. As for the security of energy supplies in the coming months, the chancellor said there would be no cause for major concern at the moment. “As far as we can tell now, we’ll see through the winter with our supplies.”
Postponement of increases, price brake, support growth
Relief measures agreed by the SPD, the Green Party and the pro-business Free Democrats (FDP) include, but are not limited to:
The planned increase of the German national CO2 price by five euros per tonne in the transport and heating sectors will be postponed by one year to 1 January 2024. Likewise, two consecutive increases planned for 2025 and 2025 will be postponed by one year. 2026.
A “price brake” that is financed by taxing the windfall profits of energy companies in times of crisis. According to Scholz, there should be a cap on the profits of electricity producers who are not dependent on currently extremely expensive natural gas, ideally across the EU
Providing 1.5 billion euros per year from the federal budget to the states to support a nationwide public transport ticket “if the states provide at least the same amount”. The goal would eventually be to offer a nationwide monthly ticket that would cost 50 to 70 euros.
A support program for energy-intensive businesses that cannot pass on cost increases to their customers, coupled with surcharges for efficiency investments and substitution.
An increase in housing allowance combined with a permanent allowance for climate and heating measures.
A one-off heating allowance covering the period from September to December 2022 for all households, which will subsequently be extended to housing allowance recipients. The heating allowance will be 415 euros for single-person households, 540 euros for two-person households and an additional 100 euros for each additional member.
Germany’s unemployment benefit (Hartz IV), which will be referred to as “citizen’s money” from 2023, will be increased by around 50 euros to 500 euros per month.
Pensioners will receive a one-off utility payment of €300 and university students and apprentices €300 (a follow-on measure to the agreement on payments for other groups of society in the previous package).
Finance Minister Christian Lindner of the FDP said Germany would not have to take on debt to finance the massive relief package.
“These measures will be introduced as part of the government’s current budget planning,” he stated.
“The budget will be supplemented by taxation of windfall profits, which will bring a double-digit amount in the order of billions of euros to the state treasury,” Lindner said.
Helping those who earn less
Economy and Climate Minister Robert Habeck said the basic concept of the package was to “help more for those who earn less”, a principle needed to “secure a democratic consensus in this crisis”.
The rapid rise in energy prices has “taken the issue of social justice to a new level”, the Green Party minister said, which is why the windfall tax deal is particularly important to him. Together with his fellow energy ministers from the EU, he should discuss this tax, as well as the brake on electricity prices, on September 9.
Tax implications of windfall income
Robert Habeck called the windfall tax “fair” and argued that companies that generate energy from renewables, coal or nuclear can do so without any increase in production costs. However, due to the functioning of the European electricity market, these would currently earn “crazy” profits based only on “chance”.
Using this money to finance solidarity measures through lower prices would therefore be correct, argued Habeck.
The incentive to reduce consumption would remain, as the brake would only apply up to a certain amount of consumption. SMEs would have access to a similar mechanism, he added.
Economist Michel Hüther of the IW research institute criticizes the windfall tax, saying that its returns, and thus the relief for electricity customers, will remain “incalculable”. Hüther told the Rheinische Post that the tax would ultimately be a “vague solution with an unclear scope and effect”.
The union of local energy companies said a large relief package would be “necessary”, but noted that some measures still needed to be more clearly specified, “in particular the mechanism for taxing windfall profits and the electricity price brake from which they will be financed”. According to the head of the union Ingbert Liebing, such a measure would have to be “feasible for energy suppliers and network operators”, including local energy companies that are struggling with the current situation.
Kerstin Andreae, head of energy industry association BDEW, said the only long-term way out of the energy crisis would be to invest more.
“We need smart approaches to move Germany and the energy transition forward,” Andreae said, which would have to include investments in renewables, gas, hydrogen and hybrid power plants, LNG and grid infrastructure, storage technologies and electrolyzers.
“These investments in the energy transformation must not be reduced by an unexpected tax,” warns Andrea.
Renewable energy industry lobby group BEE has described the current crisis as a “fossil fuel supply crisis” that needs to be eradicated at its roots. Investing in renewable energy infrastructure would be the only way to achieve this and strengthen companies in their home market of Germany, BEE chief Simone Peter said.
The head of the chemical manufacturers’ association VCI, Wolfgang Große Entrup, said that the reliefs for businesses in the package so far remain “vague” and must be fleshed out quickly.
“The situation for businesses is dramatic,” he said, arguing that businesses need at least some certainty of planning to stay afloat.
“If there is no massive support for businesses now, we will lose entire industrial structures. And along with jobs, we will also lose tax revenue, not only temporarily, but in the long term,” added Wolfgang Große Entrup.