Polluters must pay – fair environmental tax reform could relieve German citizens

Through climate change, air pollution, plastic waste and other environmental effects, the German economy creates external costs at the level of 13-19 percent of the German GDP every year, or 455-671 billion euros, said a coalition of researchers in the government-supported project Ariadne. With the right reform of environmental taxes and levies, polluters could be made to pay and citizens relieved, said the researchers in a paper. Ariadne project is a coalition of prominent researchers and institutions working on issues surrounding the energy transition. They criticised that current revenues from energy taxes, CO2 prices and other taxes and levies covered only a quarter of external costs and were often shouldered not by those responsible, but by taxpayers as a whole. The potential additional revenue for the state through environmental taxes totals 348-564 billion euros, the researchers calculate. This would leave a lot of room to lower other taxes to make a reform socially fair. According to the paper, four areas are key: CO2 pricing in the EU Emissions Trading System (EU ETS) should be raised to reflect the harm done through climate change; agriculture should factor in external costs to push sustainable production methods; taxes and levies on electricity should be lowered; and toll systems should be introduced across the country, which could allow for lowering energy taxes.

German politicians, researchers and the public have long debated a complete overhaul of German energy taxes and levies and its effects on fuel prices, low-income households and state revenues. After much political wrangling, the current government coalition introduced a CO2 price for transport and heating fuels at the beginning of this year, which will steadily rise over the coming years. Parts of the revenues will be used to lower the renewables levy that power consumers pay with their bills.