German government set to introduce a carbon tax

Earlier this month, German Chancellor Angela Merkel announced that the government would examine proposals for a system of carbon pricing to make activities that supposedly contribute to climate change by releasing carbon dioxide more expensive.

Last week, senior officials from both parties of Berlin’s coalition government reached a consensus regarding a proposal by Social Democrat (SPD) Environment Minister Svenja Schulze to introduce an economy-wide system of carbon emissions pricing. Economy Minister Peter Altmaier from the Christian Democrats (CDU) changed his mind after initially opposing the proposal, saying, “It looks like a form of CO2 pricing is going to come.”

Under the proposal, the increased costs to consumers and businesses would be compensated by tax cuts elsewhere so the net tax burden would not increase. The proposal would make electricity generated from renewable sources, such as wind and solar, cheaper compared to the coal-fired power that Germany plans to phase out over the next three decades.

Many businesses fear the costs of climate protection legislation could be crippling. The proposal would extend carbon pricing in Germany to areas such as transport and construction that are not covered by a European Union-wide system of tradeable carbon emissions. The paper said officials aimed to introduce a certificate-based scheme, rather than one that relied on a formal carbon tax.