16 Oct 2019, 12:49
Julian Wettengel

German government decides tax changes for climate plan, CO2 price details

Germany’s government coalition is moving ahead to implement its climate action plan to put the country back on track to reach 2030 targets. The cabinet has adopted several legislative drafts to mould the decisions into Germany’s tax laws and decided details concerning the design of the planned CO2 pricing system for transport and buildings.

The German government has adopted several legislative drafts to implement its climate action programme to reach 2030 targets in German tax law. The reforms include provisions on tax support for the energy-efficient modernisation of buildings, the planned increase of the commuter allowance, and lowering the value added tax (VAT) on train tickets. The drafts now have to be debated and decided in parliament.

The drafts stipulate:

  • energy-efficient modernisation of buildings can partly be deducted from the income tax
  • increase of allowance for commuters that can be deducted from taxable income, plus introduction of “mobility premium” for low-income commuters who do not pay income tax
  • decrease of VAT on train tickets to 7 percent
  • increase of air traffic tax (short-haul increase from 7.50 euros to 13.03 euros, medium-haul from 23.43 euros to 33.01 euros, long-haul from 42.18 euros to 59.43 euros)
  • possibility for local communities to introduce higher property taxes for wind parks

The finance ministry said it is currently working on additional tax laws to implement the climate measures decided with the Climate Action Programme 2030.

Chancellor Angela Merkel's so-called "climate cabinet" had put together the bedrock for future climate action legislation with a general climate package presented on 20 September 2019, which included a pricing system for carbon emissions in the transport and buildings sectors. On 9 October, the government followed up and laid out the plan's details in a framework Climate Action Law and a Climate Action Programme 2030 of measures to reach targets in all sectors.

Utility association BDEW’s managing director Stefan Kapferer welcomed the provisions on energy-efficient building modernisation. However, he cautioned that the legislation “must not be crumpled” in parliament. The state governments had opposed financing modernisation via tax rebates for years, said Kapferer. However, it is the “most expedient way to make use of the CO2 reduction potential in heating,” he added.

Details on emissions trading in transport and buildings sectors

The cabinet also decided details for the design on the planned carbon emissions trading system for the transport and buildings sectors. The government’s plan proposes starting with a fixed price of 10 euros per tonne of CO2 by 2021. Allowance prices would then rise to 20 euros in 2022, 25 euros in 2023, 30 euros in 2024, and 35 euros in 2025. As of 2026, allowance prices will be set in auctions but are going to be confined to a minimum price of 35 euros and a maximum price of 60 euros per tonne.

The planned national emissions trading system is aimed at companies that sell heating and transportation fuel, such as local utilities. At the start, from 2021-2022, the planned national emissions trade would only cover the burning of oil and gas, not small-scale coal in industry, according to the details decided today. This is to avoid pricing industry facilities twice, which might be covered by the European Union Emissions Trading System (ETS). The government needs the time to examine the "complex supply relationships". Tagesspiegel Background reports this would only affect a few of Germany's industrial facilities.

The fixed price in the early years could make it difficult for the government to argue it is a genuine trading system, reports Tagesspiegel Background. The introduction of a new tax for CO2 emissions would entail a reform of German Basic Law, for which approval of Germany’s state governments (Bundesrat) is needed. The government would like the necessary law to set up the trading system not to be subject to Bundesrat approval, but only to that of the federal parliament (Bundestag), reports Tagesspiegel Background.

Spiegel Online reported that the German government plans to increase support for public transport stronger than initially planned. Germany plans to inject an additional 1.2 billion euros into regional rail transport and buses by 2023, the finance ministry told Spiegel. This was in addition to other increases in support already decided.

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