Germany’s planned carbon pricing system ‘unnecessarily expensive’ – economists

A price on CO2 emissions in Germany’s buildings sector is the most cost-efficient way to cut the climate impact of heating and outperforms all other regulation and subsidies currently in place, economists of research institute ZEW say in a policy brief on the government’s climate package. The carbon pricing system planned by the government in its Climate Action Programme 2030 is based on a fixed price until 2026 and aims to transform into a market-based pricing system thereafter, although prices will be kept within a price corridor. “Instead of real market-based price formation, the government continues to follow a mixture of regulatory law and subsidies,” which, according to the economists, “makes climate action unnecessarily expensive.” The researchers say redistributive effects that disadvantage poorer households under a market-based pricing system could be countered with a “per-capita relief” in taxation or social security contributions, a model already practiced in Denmark and Switzerland.

The planned carbon pricing system will start 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. 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. Analyses by legal experts suggest that the system might be unlawful due to its ambiguous fiscal design, meaning that it ultimately could result in reclaims worth billions of euros.