German government decides to freeze national carbon price in 2027

Germany’s coalition government has decided to freeze the national carbon price for transport and heating fuels at current levels in 2027, following the EU decision to postpone the Emissions Trading System (EU ETS 2) for the two sectors, public broadcaster ARD reported. Leaders of chancellor Friedrich Merz’s conservative alliance of Christian Democrats (CDU) and the Christian Social Union (CSU), and the Social Democratic Party (SPD) met in Berlin and decided that the price corridor of 55 to 65 euros per tonne would remain in place next year. 

The decision could make reaching climate targets more difficult, Brigitte Knopf, head of think tank KlimaSozial and previously one of Germany's chief climate policy advisors, said. Current government emissions projections assumed a steady rise to about 80 euros per tonne of CO₂ that year, which would provide more incentive to phase out fossil fuels. Moreover, the lower price could mean that Germany’s Climate and Transformation Fund could lack up to four billion euros as it relies on revenues from emissions trading, Knopf warned.

Germany introduced a price on greenhouse gas emissions in the transport and buildings sectors from 2021 as a key instrument to help reach its climate targets. It started with a fixed price, which increased every year, before switching this year to a system determined by auctions with a price corridor of 55 to 65 euros per tonne.

The EU ETS 2 will replace Germany's national system. But as part of a deal on an emissions reduction target for the European Union for 2040, countries agreed to delay the ETS 2 start to 2028. As a result, the German national system will run for one extra year. Lawmakers from the CDU and SPD had proposed to freeze the price, but a government decision was still pending.