German parliament approves CO2 starting price of 25 euros per tonne

The German parliament has voted in favour of a higher starting price for the country’s new CO2 reduction scheme in the heating and transport sectors, dpa reports. The majority of MPs agreed to setting the price for one tonne of CO2 at 25 euros. As of 1 January 2021, companies that bring petrol, diesel, heating oil and natural gas into circulation will have to buy emission allowances. The price will increase to 55 euros per tonne by 2025 and as of 2026 the price will be determined by auctions within a frame of 55-65 euros.

According to the environment ministry, this will result in one litre of petrol becoming 7 cents more expensive, diesel will be up 7.9 cents, heating oil 7.9 cents and natural gas 0.6 cents per kilowatt-hour. The revenue from the pricing scheme will be used to lower electricity costs and reimburse those with a long car commute to work.

Environment minister Svenja Schulze (Social Democrats- SPD) welcomed the parliament's vote but reiterated her demand to share the burden of higher heating costs between landlords and tenants more equally. “It’s the landlords who decide about installing new boilers. They should therefore also pay part of the CO2 price,” Schulze said, according to the article. If only tenants were paying the CO2  price, landlords would have no incentive to make the heating system more efficient, the social democrats in government have argued.

Kerstine Andreae, head of the German Association of Energy and Water Industries (BDEW) said: "The introduction of CO2 pricing in the heating and transport sectors is an important milestone in German energy and climate policy.”

A strategy paper by the Association of German Chambers of Commerce and Industry (DIHK), seen by dpa and carried in an article by the Frankfurter Allgemeine Zeitung, says that companies subjected to the CO2 price for the first time would be in “urgent need” of compensation. Otherwise, foreign competition would force businesses to move their production to places with lower CO2 costs, the paper warns. The federal government has already decided that those industrial companies faced with disadvantages in international competition can apply for financial compensation – if they reduce emissions and increase efficiency in return, the article says.