German govt coalition agrees power price package to relieve energy-intensive industries
Germany’s three-party government coalition has agreed a “power price package” worth many billions of euros over the next five years, which are intended to provide relief to manufacturing industries faced with high power prices. The package includes lowering the electricity tax for at least two years, and extending and expanding existing subsidy schemes, the government said.
While industry representatives generally lauded the package as much-needed relief, it was also criticised for lacking a long-term perspective and potentially distorting decarbonisation efforts by allowing ineffiecent or polluting activities to continue.
“Next year alone that will be relief worth up to 12 billion euros,” said chancellor Olaf Scholz from the Social Democrats (SPD). He added that the agreement would provide planning security for companies and relieve them of bureaucratic burdens.
The agreement is set to end a months-long dispute within the coalition over how to support industry in the coming years. Economy minister Robert Habeck (Green Party) had proposed heavy subsidies to cap electricity prices for energy-intensive companies, but his plan had run into resistance form the chancellor and the third coalition partner, the pro-business Free Democrats (FDP). “It is important that we have found a common way to support the competitiveness of industry - from medium-sized companies to large corporations,” said Habeck.
The measures will now have to be debated and ultimately agreed by parliament. According to media reports, the deal was reached by a close circle around Scholz, Habeck and FDP leader and finance minister Christian Lindner.
The package agreed among the leading party figures consists of several measures:
- Lowering the electricity tax for all manufacturing companies to the EU minimum in 2024/2025 of 0.05 cents per kilowatt hour (ct/kWh), from currently 1.537 ct/kWh (replaces current mechanism through which only energy-intensive companies are entitled for a reimbursment of large parts of the electricity tax); an extension for the years 2026-2028, provided the federal budget allows it
- Five-year extension of a subsidy scheme to compensate energy-intensive companies for parts of the CO2 costs for electricity under the EU Emissions Trading System (EU ETS); abolishes the rule that the first gigawatt hour is not compensated
- Five-year extension of the “super cap”, which limits total CO2 emissions trading costs for about 90 especially energy-intensive companies to a certain percentage of the company’s gross value added; abolishes the caveat that a certain base amount is not compensated
- A state subsidy to keep the rise of grid fees in check in 2024 (already decided)
There is currently no single power price for industrial consumers in Germany. On the contrary, there is an exceptionally broad range of prices that depend on a wide range of criteria. While German households in 2023 pay roughly 45 ct/KWh for their electricity - one of the highest rates in Europe, energy-intensive companies already pay significantly less because they are exempt from many taxes and levies [For more details, read our factsheet Industry power prices in Germany: Extremely high - and low].
Industry widely welcomes package, NGO and economists critical
Energy industry association BDEW said the package will support energy-intensive companies and contribute to Germany's competitiveness as a business location. The lobby group welcomed the fact that the government did not set a regulated electricity price: "We need price signals from the market for investments in energy efficiency and renewables, but also for the transformation of industrial processes," BDEW head Kerstin Andreae said.
"This is a victory for common sense," said Marie-Christine Ostermann, head of the Family Business Association (Familienunternehmer), a lobby organisation for large family-owned corporations. "This is how government policy works for the benefit of the entire economy," Ostermann added.
The renewable energy association BEE welcomed the move but said there were improvements still to be made. "The continuation of the existing electricity price compensation scheme, which offsets the cost of purchasing CO2 certificates, should be rejected," BEE head Simone Peter said. Otherwise, companies that have not yet committed to switching to renewable energies would be additionally subsidised, while those that have would be left empty-handed, she argued.
The trade union for mining, chemicals and energy industries (IGBCE) also welcomed the package and said it was an important first step, but argued that the measures are not enough to achieve a sustainable reduction in electricity prices for companies facing international competition. "In the view of the IGBCE, further specific measures, possibly targeted at affected companies, are necessary to achieve this," said the union's head, Michael Vassiliadis.
The chemicals industry association VCI echoed the feeling, saying the package "only solves a small part of the acute problems facing our industry" and does not provide additional relief to improve international competitiveness. The energy and power industry association VIK added that, while the measures were promising, these were no substitute to the "bridge" industry power price that had previously been discussed. It was important to secure an internationally competitive energy price level in the long term, it said.
The Cologne Institute for Economic Research (IW Köln) questioned the long-term effectiveness of the package, welcoming it as a whole but saying it is still unclear how effective it will be. "This is a much-needed step in terms of industrial and climate policy and should also make it more economically attractive for small and medium-sized companies to electrify their processes and thus reduce their emissions - without any new bureaucratic burden," it wrote in a press release. "It remains to be seen whether the agreed steps will be enough to stop the threat of deindustrialisation in the basic industries," the institute added, arguing that the package wasn't enough to create long-term planning security.
NGO Greenpeace was more critical of the proposal, saying the measures undermine incentives to reduce energy consumption and emissions. "In order to drive forward the climate-friendly restructuring of the economy, [the government] should provide targeted support to companies switching to energy-efficient production processes with renewable energies," energy expert at Greenpeace Bastian Neuwirth said.
Economic think tank FÖS also criticised the package, saying it was "counterproductive for the energy transition, not sufficiently targeted and therefore unnecessarily expensive for the federal budget." Companies will be given blanket relief without being obliged to make a contribution to climate protection, FÖS head Carolin Schenuit argued.