Debate on lowering electricity tax for all consumers resurfaces in German coalition

The debate about lowering the electricity tax for all consumers to the EU minimum level has resurfaced in Germany’s coalition government, following an announcement by chancellor Friedrich Merz that his party wants to use “leeway” in the budget to cut the tax, thereby fulfilling a promise in the coalition agreement between his conservative Christian Democratic Union (CDU) and the Social Democrats (SPD). The chancellor said his party would push for lowering the electricity tax within the coalition government, acknowledging that the promise had yet to be kept.

“We not only want to offer financial relief but also close a gap in our credibility,” Merz said after a two-day CDU retreat, which followed heavy losses for the party in recent state elections. The recently adopted fuel tax rebate was another “important signal” that the government aims to ease financial pressures on citizens, he added.

While many large industrial consumers pay lower electricity rates, household electricity prices in Germany are among the highest in the world, with a large share of the price made up of taxes, levies and other politically determined components. The electricity tax for households in Germany currently stands at 2.05 cents per kilowatt-hour, while the EU minimum level is 0.1 cents. 

According to price comparison website Verivox, the reduction would save an average three-person household about 93 euros per year. This would be equal to lowering household electricity bills by about seven percent and save consumers nationwide around three billion euros in total.

Contrary to its promise in the coalition agreement, the government last year limited the electricity tax cut to selected sectors of the economy, arguing that the tight budget situation would not allow for broader relief. Merz said extending the cut had become possible thanks to stronger-than-expected economic growth. 

However, finance minister and SPD co-leader Lars Klingbeil said it was not yet clear whether there is room in the budget to finance such a step. “We are glad that economic growth has returned. But I cannot confirm the assumption that this would allow for a permanent reduction of the electricity tax,” Klingbeil said, according to a report by news agency dpa. 

Consumer protection groups, industry associations and other interest groups had all called for lowering the tax for households after last year’s decision to limit the reduction to certain sectors sparked public outcry. Consumer protection organisation vzbv earlier this year called on the government to implement “the key promise from the coalition agreement” as part of its response to the energy crisis caused by the war in Iran.

Peter Adrian, head of the German Chamber of Commerce and Industry (DIHK), said extending the tax cut to all businesses is “overdue and necessary,” as it would provide financial relief and encourage electrification. “At the same time, reducing the electricity tax sends a vital signal for climate protection,” Adrian added. Lower electricity prices make the switch from fossil fuels to electrified processes financially more attractive, he argued.