Germany considers a carbon tax

Germany is considering introducing a new carbon emissions tax to help reduce production of greenhouse gases that contribute to climate change. The Economic Ministry said a council of economic advisers had been asked to investigate a possible system for pricing carbon dioxide emissions.

A ministry spokesman said the advisers have long called for some form of carbon emissions pricing and had in the past advocated introducing a form of harmonized pricing for carbon used in electricity generation, transport, and heating and that “Work is currently underway to commission the expert council to carry out an assessment. The assessment will explore a possible system of carbon dioxide pricing. The further details are still being discussed.”

In January this year, the government considered reforms to its 20-year-old Ökosteuer, or ‘eco-tax’, introduced by the Social Democratic (SPD)-Green coalition in 1999. In its first four years, that tax led to the rise in fuel prices by 20 percent. There were four annual rises in the rate of the eco-tax until 2003, of about 3 cents per litre each time, in the price of heating oil and petrol. Public outrage was palpable but has since dissipated, despite the fact that energy revenues, including from the eco-tax, reached a record €41 billion last year, the highest level in 14 years.

The present tax reform driven by the Greens aims to encourage ecological thinking in the use of energy, specifically fossil fuels, and top up public pension funds with the proceeds. Hans Eichel, the former Finance Minister who oversaw the tax when it was introduced told a German ecological magazine, “The eco-tax has survived every change of government. Now the entire world – apart from Donald Trump – agrees that we have to pull back from the use of fossil fuels as quickly as possible. One means for this is a carbon tax.”

About 90 percent of the total energy tax is generated by sales of petrol and diesel. On the average price per litre, about 60 percent goes on four kinds of tax. VAT takes 19 percent while about 73 percent of the tax (47 percent of the total litre price) goes on energy tax. Since 2003 the eco-tax has been a levy of 15.35 cent per litre. Another eco tax is charged on electricity bills, both domestic and commercial. The current charge is 6.88 cent/kWh, which was revised in 2014 to generate funding for Germany’s transition to nuclear-free energy. This tax does not apply to renewable energy sources while industries with high energy use pay a much lower rate.