German government adopts higher CO2 starting price of 25 euros per tonne for transport and heating

The German government has adopted an amendment to its national carbon pricing system for the transport and heating sectors by increasing the starting price to 25 euros per tonne by 2021. "The higher CO2 price makes fossil fuels more expensive and brings us closer to the climate targets," environment minister Svenja Schulze said. The initial price proposed in the government's Climate Action Plan of 10 euros per tonne has been widely criticised by climate activists and others, and led the Green Party to exert pressure on the government to raise the entry price. The government had initially planned to charge 25 euros per tonne only by 2023. According to the environment ministry (BMU) the new starting price will increase the cost of one litre of petrol by 7 cents and one litre of diesel fuel by 8 cents. The price of natural gas for heating will rise by about 0.5 cents per kilowatt hour. The carbon price will rise to 55 euros by 2025, and after that will be set by tenders within a fixed margin. The government also said it would introduce measures as early as next year to counter carbon leakage by companies who seek to relocate production to avoid emissions costs.

With the additional earnings generated through carbon pricing, the government plans to reduce the renewables surcharge on the power price in order to make electricity cheaper as prices for fossil fuels increase. "So far it's been power customers who finance renewables support in its entirety," economy minister Peter Altmaier said. "From now on, we will use our budget resources to reduce the surcharge and help customers save money.”

The agreement on CO₂ pricing was reached by a working group set up by the mediation committee between the national parliament (Bundestag) and the council of state governments (Bundesrat) in late 2019. The amendment must now be approved by parliament.