Germany's coalition in disagreement over planned fuel price cap

A proposal for a fuel price cap to provide car drivers with cost relief amid the price surge due to the Iran war is causing disagreement in Germany’s coalition government, with leading members of the Social Democrats (SPD) calling on rewriting a draft law presented by economy minister Katherina Reiche from the conservative Christian Democratic Union (CDU). Reiche’s proposal would come much too late to shield drivers from war-driven price spikes and allow oil companies to circumvent it, said Tim Klüssendorf, the SPD's secretary general in a report by newspaper Die Zeit. “It cannot and will not stay like it is,” Klüssendorf said. 

Coalition leaders agreed in mid-September to introduce a temporary fuel price cap no later than 1 January 2027 in response to the surge in prices at the pump. A separate fuel tax cut of 17 cents per litre also agreed in September will expire at the end of the year. Reiche had tabled her proposal at the beginning of this week, stressing that it should only apply “in an absolute emergency as a crisis response tool.” Thorsten Frei, who leads the conservative parliamentary group, warned that the cap must not lead to a situation in which Germany receives less fuel because oil companies can sell it at higher prices in other countries. 

Germany’s neighbour countries Belgium and Luxembourg have long-standing fuel price cap mechanisms in place in which the prices are set by authorities at a regular basis. By contrast, minister Reiche said the price cap in Germany should come with high hurdles to minimise market interventions by the state, public broadcaster ZDF reported.

According to the draft, the price cap should only apply if price rises for petrol and diesel are five percentage points higher than the average of other EU countries for three consecutive weeks. Moreover, the cap should remain effective for a maximum of three months. At the same time, Germany’s states should be allowed to deviate from the price cap to account for regional differences. 

The country’s most important motorist association, ADAC, said it remains unclear whether the price cap will be introduced at the beginning of next year, given the discrepancies in the coalition and the yet unclear calculation for setting a maximum price. According to ADAC, it is not even clear whether the price cap will make petrol and diesel cheaper. While it could help curb price spikes, average prices at the pump are unlikely to change significantly under the proposed rules. 

If fuel prices stay elevated in the future, the government had to come up with additional measures to relieve customers, ADAC said. “Making direct payments possible would be important to effectively support households that are especially affected,” the motorist association said, adding that a lower electricity tax would help all households. 

High fuel prices across Europe have been fuelled by the US-Israeli-led war on Iran, which responded by closing the Strait of Hormuz, a key shipping lane for fossil fuel trading. Price spikes for fuel can encourage lower consumption and, as a consequence, reduce carbon emissions, as people drive less or switch to electric vehicles (EVs). However, many people on lower incomes or small businesses who cannot afford to switch to an EV struggle to cope.