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CO2 price in Germany: What can we expect?

Topics: Saving energy, Sustainability, Sustainability, Saving energy

The new CO2 price is a national environmental levy for the transport and buildings sectors. Its aim is to make climate-friendly technologies and conversion work more attractive. We talk about the structure of the system, the costs in a international comparison and consequences for consumers.

At the beginning of 2021, Germany took a step forward in the pricing of greenhouse gases: the state now levies a national CO2 price in the transport and buildings sectors – with consequences for consumers. The aim is to increase the cost of fossil fuels, for example in order to promote the switch to climate-friendly technologies and renewable energies. We answer the most important questions about the CO2 price in Germany and Europe.

What is the CO2 price?

Alongside the European emission trading system, which applies to energy-intensive industries, the energy sector and European aviation, a separate system has now been introduced in Germany in 2021 for the buildings and transport sectors. Since January 2021, consumers who buy fossil fuels have to pay a fixed price of 25 euros per tonne of CO2. Over the coming years, the cost will increase to 55 euros per tonne of CO2. The price relates to the amount of CO2 that is released when the fuel is burned. From 2026, there will be a gradual switch from a price set by the state to a system similar to the EU emissions trading system. From then on, emission certificates will be sold so the market will determine the price.

How high is the CO2 price?

In Germany, the CO2 price is regulated via certificates. However, the CO2 price is currently like a tax since it is being set and controlled by the state; a market-based system similar to the EU emissions trading system will not apply until 2027. During a five-year introductory phase, the state will issue the certificates at a fixed price: a price of 25 euros per tonne of CO2 will apply in 2021; the cost will rise to 55 euros by 2025. After that, there will be a transition to a market-driven system. During the transition phase from 2026/2027, certificates will be traded in a price corridor of between 55 and 65 euros. From 2027 onwards, the price will be controlled solely by trading in the set number of certificates that are issued.

Who pays the CO2 price?

The German CO2 certificates have an impact on energy prices – initially for companies that sell fossil fuels for heating or use in the transport sector. These companies pass the costs directly on to consumers.  Particularly in the housing sector, this increases costs for tenants (official legal situation since 1 January 2021). Proposals for splitting the additional cost between landlords and tenants according to who is responsible for causing the emissions are being discussed. The CO2 price is, on the one hand, designed to encourage tenants to change their own consumption behaviour. On the other hand, it is also intended to create incentives for landlords to invest in climate-friendly buildings.

What does the CO2 price mean for consumers?

The CO2 price increases the cost of heating and road fuels for the consumer. However, consumers can often not influence the energy efficiency of their apartment themselves: it is up to landlords to decide whether their apartment buildings are heated with renewable energies. That is why policymakers want to ease the financial burden on those consumers who are particularly affected. The renewables surcharge (EEG surcharge) will already be reduced slightly from 2021. People on low incomes will receive a ten per cent increase in their housing allowances to offset any social hardship.

What extra cost does the CO2 price mean for tenants?

Together with Dortmund Technical University, ista has calculated, by way of example, the costs for households resulting from the new price on CO2 emissions from heating oil and natural gas. The calculation was based on the fixed prices of 25 to 55 euros per tonne of CO2 and a 71-square-metre apartment. The extra costs also vary depending on the region. Here is an overview of the additional cost resulting from the CO2 price (german) in Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart.

What is the point of the CO2 price?

Just like its role model - the European emissions trading system - the CO2 price in Germany is intended to control use of the different types of energy. Ideally the following is supposed to happen: policymakers increase the price that is paid for consuming fossil fuels. This encourages companies and consumers to seek lower-cost, climate-friendly solutions for heating and transport. They then use, for example, climate-friendly heating systems or change their consumption behaviour. This takes Germany closer to its climate targets. This interconnection is also the reason why the German CO2 price is part of the Climate Protection Programme 2030.

What happens to the revenue from the CO2 price?

The aim of the CO2 price is to reduce the consumption of fossil fuels and make climate-friendly alternatives more attractive. The Federal Ministry for the Environment lists how a CO2 price supports those "who use climate-friendly products and live in a climate-friendly way" – for example by paying an environmental bonus for electric cars, promoting energy-efficiency measures in buildings or reducing VAT on rail tickets. "However, the revenues generated will also be used to alleviate hardship suffered by consumers.“

Which countries have a CO2 price?

The world bank's carbon pricing dashboard shows 64 international carbon pricing initiatives. They include the European emission trading system that has been running since 2005. With its national CO2 price for the transport and buildings sectors, Germany is rather a latecomer in Europe. Some countries, such as Sweden, Finland, Norway and Denmark, started to levy CO2 taxes or surcharges about 30 years ago. Switzerland, Portugal, France, Luxembourg, the Netherlands, Ireland, Poland and the Baltic states also have a CO2 tax.

How high are the German CO2 prices in a European and international comparison?

The CO2 price in Germany starts with fixed costs of between 25 and 55 euros and will subsequently be in a price corridor of between 55 and 65 euros for a transition period. In 2027, there will be a switch to a market-based certificate trading system. CO2 prices or CO2 taxes vary considerably in the different countries - both in Europe and internationally. Sweden has set the highest carbon tax in Europe. The price is currently 1,190 kronor (about 118 euros) per tonne of CO2. In France, the tax is 45 euros, in Switzerland 96 Swiss francs (about 89 euros), in Portugal 24 euros and in Lithuania 12 euros per tonne of CO2. Poland has a particularly low CO2 price, the equivalent of about 7 cents.

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