Germany should use CO2 pricing revenues to lower electricity prices, drop climate bonus – economists

The German government should use revenues from carbon pricing to lower or abolish several components of the electricity price, rather than make good on its plan to introduce direct payments to citizens (the so-called climate bonus, or “Klimageld”), economists from the RWI – Leibniz Institute for Economic Research (RWI Essen) have said. "Lowering electricity prices would significantly reduce the burden on both consumers and small and medium-sized enterprises (SMEs), and companies would be given new incentives to invest and the economy could grow more strongly," they write in a paper. They add that at a time of financial constraints, "it would be wise to use the extremely scarce funds in such a way that the energy transition is advanced and the burden on citizens is reduced at the same time."

Germany’s coalition government has promised to set up a mechanism to compensate for rising carbon prices (the climate bonus). The idea currently discussed is to return CO2 price revenues to citizens in per capita-payments. Such a climate bonus would only be paid out to individual citizens, and not to companies. A budget crisis caused by a constitutional court ruling in late 2023 means that fewer funds than planned are available in Germany's key climate policy budget, the Climate and Transformation Fund (CTF). This is where the revenues from carbon pricing go, and the climate bonus is to be paid from. Finance minister Christian Lindner has said that the next government would have to decide whether there are sufficient funds to finance both the climate policy programmes and the climate bonus payments.