October 7, 2019 (05:02)

The consequences of adopting a climate plan in Germany

On September 20, 2019, the German Federal Government approved the draft German Climate Action Plan, which provides for a comprehensive set of measures to achieve national climate protection goals. The total cost of the project is estimated to be over EUR 52 billion by 2025. Despite support of the draft plan by members of the so-called “Grand Coalition” (CDU / CSU / SPD), the document is sharply criticized by representatives of the Green Party and the right-wing party “Alternatives for Germany”, whose ranking are rising among German voters. If the former require decisive steps to limit CO2 emissions through administrative and fiscal mechanisms, the latter reject the climate issue as being contrary to the social and financial interests of the Germans.



According to the document, the main vector of the efforts of the current federal government will be aimed at overcoming the negative impact of the transport sector, which is the only one in Germany today that shows a steady increase in emissions. To overcome this trend, a flat-rate CO2 emission charge of EUR 10 per tonne will be introduced from 2021, with a gradual price increase of up to EUR 35 per tonne until 2025. By 2030, the transition to a market-based form of emission pricing is expected, the range of which, as the German government sees, is between EUR 35-60 per 1 tonne of CO2. As a result of this government policy, all kinds of hydrocarbon fuels are expected to rise in price. An additional factor will be the revision of the car tax with the expected progressive increase of its rate in accordance with the volumes of CO2 emissions.


To ease the financial burden on end consumers, a system of compensation to the economically active part of the population in the form of 35 euro cents to reduce taxation of each kilometer of daily commute to and from workplace, but starting from at least 21 km and until 2026.


Instead, it reduces the value added tax (VAT) on the ticket price from 19% to 7%. Together with the additional national railway transport development program, Germany aims to increase its share in the structure of transport services. Also, the government subsidies purchase of new electric vehicles, in particular, EUR 4,000 will be compensated for vehicles of up to EUR 40,000, which should stimulate the purchase of budget electric vehicles by both private households and small and medium-sized businesses.


The federal government proposes to introduce a special fee for airline tickets, which can have a very negative impact on budget air travel and reorient some passengers to the rail sector. In particular, this policy may make a low-cost airline Ryanair exit the German aviation market in the coming years.


Since 2026 a ban on installation of heating systems using hydrocarbon energy resources, in particular diesel fuel, will be imposed. Replacement of old equipment with greener fuels provides for a compensation of 40% of its cost, as well as an expansion of state support of energy modernization of buildings.


Starting from 2021, the rate of the renewable energy fee, which is paid mainly by private consumers, small and medium-sized businesses, is expected to decrease in view of increasing market prices during auctions for the construction of new green generation facilities. To facilitate the further development of RES, notably ground-based wind energy, it is planned to simplify permitting procedures and increase the interest of local communities by introducing regular allocations to local budgets for new projects. The federal government also plans to increase its solar generation quota (today 5 GWt per year), which will be able to claim the state-guaranteed market price allowance and extend its application to new objects until 2025.



Based on Germany’s internal public demand and international policy goals, the federal government has drafted a climate plan for the period up to 2030, which has identified priorities for the development of the transport, RES, heating and heat-supply sectors aimed at reduction of hydrocarbon fuel and CO2 emissions. The combination of fiscal methods of influence and targeted governmental support programs of low carbon generation, heating and transport is envisaged.

The draft climate plan may still undergo some changes and additions in the hearings in the bicameral parliament – the Bundestag and the Bundesrat, where the “Green Party” and “Alternative for Germany” have significant positions. At the same time, the draft climate plan proposed by the federal government today looks more realistic to be implemented in current political and financial situation in Germany.

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