Conservative MPs propose makeover of German energy tax system based on higher CO2 price

A group of 29 MPs of Germany's conservative Christian Democrats (CDU) has proposed a radical makeover of Germany's system of taxes, levies and surcharges on energy and base them on a high CO2 price aligned with international climate targets. In a paper titled "Policies for a green zero" published on news website n-tv, the members of Chancellor Angela Merkel's governing party said Germany had "already made good progress" towards meeting its emissions reduction targets, especially with regard to the industry and energy sectors. However, the MPs, who include former environment minister Norbert Röttgen who recently ran for party leader, concede that the "overall low speed" of greenhouse gas reduction meant the country most likely would not meet the "more ambitious" EU targets that aim for net-zero CO2 emissions by 2050. They propose to do away with all existing subsidies for fossil fuels as well as with the renewables surcharge (EEG levy), the aviation levy and the vehicle tax by 2025. The current state revenues from the taxes the CDU group proposes to abolish amount to 80 billion euros per year. Instead, they argue that Germany's carbon price that was introduced at the beginning of the year at 25 euros per tonne should rise more quickly than currently planned. This would bring the country’s carbon price closer to that in the European trading system ETS that is determined by the market. On balance, this could even lead to "the greatest tax cut in years," the conservative MPs argued, especially in the long run, if CO2 emissions go down as planned and thus no longer command high financial duties on consumers. The group said a state-backed "Contract for Carbon Difference System" at EU level could be a useful tool to encourage investments in low-carbon solutions.

Referring to criticism often addressed to the Green Party's approach to climate policy, the CDU members said their proposal would not aim to introduce more but “cleverer" rules to steer the economy towards climate-neutrality. They also called for lowering regulatory hurdles to CO2 capture options (CCU and CCS), support for synthetic fuel production based on hydrogen to complement electric mobility and for measures to avoid carbon leakage, meaning that CO2-intensive production is relocated outside the EU.

A transformation of the system of taxes, surcharges and levies on energy has long been rejected despite being widely recognised as a prerequisite for setting the economy on track towards climate-neutrality. Ahead of Germany's federal elections in September, when Chancellor Merkel leaves the stage into planned retirement, parties are gearing up for election campaigns in which climate and environment are expected to rank high even amid the coronavirus pandemic and its economic consequences.