German CO2 price legal 'time bomb', may result in billions of reclaims – researchers

The carbon pricing system for heating and transport fuels planned by Germany's government could prove to be a legal "time bomb" and lead to billions of euros in reclaims if the country's Constitutional Court decides that the levy is unlawful, climate policy research institute IKEM says in a report on the pricing scheme's legal implications. IKEM says the planned law for fuel emissions trading that is part of Germany's Climate Action Programme 2030 can neither be classified as skimming off of profits - as no pricing cap is planned in an initial phase until 2026 - nor as a consumption tax since the costs for allowances will be allocated to consumers even though these are not the ones using them. Moreover, the price cap prevailing by 2027 "could lead to a price explosion for which companies cannot prepare" and make a "fundamental decision" for participants in emissions trading completely unpredictable, the researchers say. The IKEM report proposes shortening the CO2 price's introduction phase and abolishing the subsequently planned price corridor to turn it into a legally sound consumption tax. "This will help alleviate constitutional concerns. In order to remove also the second obstacle, CO2 prices have to rise faster to avoid a sudden increase in 2027," said IKEM head Simon Schäfer-Stradowsky.

The pricing scheme's introduction for the buildings and transport sector is regarded as a crucial step for Germany to improve its emissions reduction record. It stipulates starting with a fixed price of 10 euros per tonne of CO2 by 2021 and sets fixed price increase levels leading to 35 euros per tonne in 2025, allowing citizens and companies to get used to the new pricing system. Fuel retailers have to purchase allowances and create a "trading platform." As of 2026, allowance prices will be set in auctions but are going to be confined by a minimum price of 35 euros and a maximum price of 60 euros per tonne.