German government aims to use climate funds to lower gas prices

The German government cabinet has agreed to a reform to abolish the country’s gas storage levy and instead ensure sufficient stored gas volumes using state funds earmarked for the transition to climate neutrality. Germany's gas storage levy, which is meant to help finance the filling German storage facilities, is currently paid by consumers with their gas bills. The move was announced earlier this year, and still needs to be approved in parliament.

NGOs and think tanks have heavily criticised the government’s plans to finance the levy through the Climate and Transformation Fund (CTF). The CTF is only one of several special-purpose funds outside the regular state budget, which also exists for other areas such as defence spending. Its funds can currently be used to “promote measures that serve to achieve the climate targets” under the country’s climate legislation, especially measures to advance Germany’s transformation to a climate neutral economy.

Renewable energy industry association BEE now welcomed that consumers would receive energy cost relief, but criticised the “one-sided” focus on fossil gas. In the long-term, abolishing the levy “creates false incentives and an imbalance in favour of fossil gas over electricity,” said BEE head Simone Peter. This made it difficult to push for a quick switch from fossil fuels to renewables, reinforced the high dependence on fossil fuel imports, and undermined the German government's climate targets.

Energy industry association BDEW welcomed the proposal, but called for swift parliamentary approval to make sure that it could take effect from the beginning of next year. However, the lobby group criticised that the CTF would be the financing vehicle. The government should use funds from Germany’s general federal budget, leaving the CTF for investments in climate action and the transformation, it said.

The government lowered the country’s gas supply alert to the lowest level in July. Economy minister Katherina Reiche from chancellor Friedrich Merz’s conservatives (CDU) said she was not concerned about storage levels: “we are seeing a very stable gas market today” having “succeeded in overcoming the gas crisis caused by Russia's war of aggression.”