Germany offers examples to EU neighbours for socially just carbon pricing – think tank

EU member states should exchange ideas and best practices regarding the introduction of socially just measures to support lower-income households as the union sets a joint carbon price on fossil fuels used in the transport and buildings sectors, German think tank Zukunft KlimaSozial said in a policy brief. The case of Germany, where a carbon price in these sectors already exists, offers several positive examples for social measures, but also valuable lessons for improvement, it added. 

Zukunft KlimaSozial welcomed that Germany has started to introduce subsidy programmes differentiated by income, such as support for the purchase of new electric vehicles (EVs) or the energy-efficient modernisation of homes. However, the think tank also said evidence shows that higher-income households benefit more from existing subsidy programmes. It recommended to make support more targeted, to remove administrative barriers and to better inform potential recipients. The think tank commended Germany for introducing rules that compel landlords to share the CO₂ costs of fossil heating systems with their tenants.

The EU has decided to expand its Emissions Trading System (EU ETS) to the transport and buildings sectors with the ETS 2 from 2028. This will have a more direct effect on the population than the current system geared towards large industry (ETS 1), as it is set to increase the price of petrol and diesel, as well as of natural gas for heating. EU countries last year decided to delay the start of the new ETS 2 for transport and building emissions by one year and several governments worried that a uniform CO2 price across the EU would lead to steep increases in fuel costs. 

This could hit low-income households in poorer member states particularly hard, as these often lack the resources to switch to climate-friendly alternatives, leading governments to warn against public resistance to climate action. Experts like Zukunft KlimaSozial therefore recommend introducing social climate policies to balance social justice with climate action. They have warned that further changes to the ETS 2 could follow, especially if the EU fails to alleviate governments’ worries over social acceptance. 

Zukunft KlimaSozial criticised that Germany so far does not offer compensation measures, such as targeted direct payments to vulnerable groups. The country has long debated the introduction of a so-called climate bonus (“Klimageld”), which would return revenues from emissions trading to citizens through fixed direct payments. However, the government has so far failed to set up such a scheme, pointing to a lack of funds and of the necessary technical and legal infrastructure to make direct payments to citizens.