Preview 2024: Government must prioritise in budget, tackle fossil fuel taxes – energy analyst
This interview is part of a series to preview the German and European energy and climate policy in 2024. You can read our full 2024 preview article as well as further interviews here.
Clean Energy Wire: The German Constitutional Court’s debt brake ruling threatens many of the carefully crafted compromises the government achieved in climate and energy policy over the past year. Which of these compromises do you think must be preserved most urgently, and how?
Andreas Schröder: The government needs to prioritise its spending. Some intended projects are too costly and rely too much on subsidies, such as electricity price rebates for big industry, consumer “price brakes,” subsidies for chip manufacturers, or covering the renewables support through taxes. These costly measures help obscuring the real costs of the energy transition, but they are not sustainable. It would be better just to make energy cheap through sufficient low-cost supply and low taxes and fees. Lowering electricity taxes could be a way to promote cheap and clean energy for all. The government coalition now pursues this route, but tax reductions will be introduced only for industries – not for all customers.
At the same time, the government foregoes revenues by not appropriately taxing fossil fuels. Estimates go as high as 70 billion euros per year. The list of indirect subsidies ranges from business car taxation to fossil fuel tax breaks for certain applications. Aviation fuel taxes are one example which the government now targets in its recent proposal by raising the ticket fees. An additional step to increase revenues is to raise the national CO2 price for transport and heating fuels further beyond the previously agreed price path. This measure was announced by the government in December 2023.
The political year 2024 in Europe is dominated by the EU elections in June. Which climate and energy topics do you think should be made a priority before the election – and which ones will await the newly elected Parliament and Commission further down the road?
The past legislative period saw major advances with the European Green Deal and the FitFor55 package of energy and climate legislation. The main pillar of EU climate strategy, the Emissions Trading System (EU ETS) was strengthened. Throughout 2024, the Commission is set to decide details on the functioning of the new carbon border adjustment [CBAM], a mechanism that is challenged by international trade partners.
Specifying climate ambition for 2040 and 2050 will be for the next Commission to decide. I expect a shift towards right-wing parties at the EU elections and national elections. The political shift will have repercussions for climate and energy policies: less willingness to engage in ambitious climate targets, a greater push for low-carbon alternatives to renewables, such as nuclear energy and carbon capture and use or storage [CCUS].
Which other topics and events in Germany and beyond do you think will – or should – shape the debate next year in energy policy, and why?
Security of supply will remain a challenge for German energy policy. The government wants to accelerate the phase-out of coal plants and build up to 25 gigawatt of new gas-fired power plants instead. It is unclear how the government can incentivise these investments in the absence of capacity markets. Markets are waiting for the government to release a strategy. Its launch was recently postponed.
