Researchers urge German gov't to implement fossil-free energy price relief measures amid Iran war

In view of the ongoing energy price shock triggered by the US and Israeli war on Iran, a new report from Germany’s state-backed Ariadne research project has called for relief measures that promote fossil-free energy sources rather than increase dependence on hydrocarbons. 

Subsidies to cushion of higher oil and gas prices can increase dependence on fossil fuels and hamper the energy transition, the researchers argued in the report. Energy price reductions financed by taxpayers provide short-term relief, but they also reduce the private sector's incentive to invest in electric cars, heat pumps, and domestic renewable electricity production, which are less vulnerable to international crises. 

The Ariadne researchers therefore recommended combining relief measures with the promotion of fossil-free energy sources, including a reduction of the electricity tax. This would make electricity cheaper compared to fossil fuels and encourage the switch from gas heating to heat pumps, for example. Additionally, general transfers, such as Germany’s 2022 energy price lump sum, could provide relief to low-income households without interfering with price signals. 

At the same time, the researchers advocated offsetting such relief measures after the crisis through higher levies on natural gas and oil – a “polluter-pays” strategy that could drive a long-term shift in investment. 

The research paper comes as the German government weighs possible relief measures amid mounting pressure. Among those, the government is considering a reduction of the vehicle tax through direct payments to motorists during the ongoing oil crisis, Handelsblatt reported. The government in the 2022-2023 energy crisis also used so-called energy price brakes to maintain affordable energy prices.