The German economy complains about high electricity prices and there is talk of migration. Now the traffic light wants to reduce electricity prices for some companies. But how much extra relief is there really in the project?
After months of discussion, the traffic light coalition agreed on electricity price relief for the manufacturing industry. Chancellor Olaf Scholz (SPD), who agreed the details with Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens), has strong words: “The federal government is massively relieving the manufacturing industry of electricity costs,” he explained on Thursday. “We are radically reducing the electricity tax.”
There are also further measures. Next year alone, this means support of up to twelve billion euros. But not everything about the package is really new – and critics fear for climate protection and the energy transition.
What is actually the problem?
Companies from all sectors complain about high electricity prices. This has gotten worse since the Ukraine war and the subsequent energy price crisis. Recently, large corporations with high electricity needs have been thinking loudly about relocating production sites to countries with lower prices.
In fact, the price of electricity in Germany is higher than in many other countries. This is due to taxes and the CO2 price, but also because Germany has hardly any oil and gas reserves and renewables produce less than elsewhere. According to data from the International Energy Agency, industry in Germany pays almost three times as much per megawatt hour as in the USA or Canada. In the EU, Germany is in the middle field.
What exactly does the federal government want to do about it?
The electricity price package has several parts. In addition to an already decided subsidy for the network fees, which are part of the electricity price, the electricity tax for all companies in the manufacturing sector is to be reduced to the minimum value permitted in the EU. This means it falls from the current reduced rate of 1.537 cents per kilowatt hour to 0.05 cents per kilowatt hour. Not only large corporations benefit from this, but also medium-sized businesses. In return, the current peak compensation, through which energy-intensive companies can have a large part of the electricity tax paid refunded, is to expire.
The so-called electricity price compensation, which relieves around 350 companies of the costs of EU emissions trading, is to be extended for five years and also expanded by abolishing the previous deductible. Extra relief for around 90 particularly electricity-intensive companies (“super cap”) is also to be expanded.
IG Metall pointed out that the package hardly brings any additional relief. “Part of the package simply extends existing measures such as electricity price compensation and super cap or compensates for deteriorations that have already been decided,” said the union. “The planned reduction in electricity tax compensates for the loss of peak compensation. These measures will not achieve any improvements, but will prevent further deterioration.”
What does this mean for the price of electricity?
The Ministry of Economic Affairs expects an electricity price of six cents per kilowatt hour for the most heavily burdened companies in the manufacturing sector for the coming year. This could affect companies in the steel and cement industries, for example. However, the industrial union IGBCE doubts this forecast.
Who goes away empty-handed?
The federal government’s package is aimed specifically at the manufacturing industry – not at retail, the service sector or even consumers. The Central Association of German Crafts warned that many energy-intensive industries would fall through the cracks. For example, textile cleaners and automotive businesses were not formally part of the manufacturing industry. The energy and water industry association argued similarly: “It would have been more consistent not to limit the electricity tax reduction to the manufacturing sector alone,” he explained. “This would also make environmentally friendly technologies such as electromobility more competitive compared to fossil fuels such as heating oil, gasoline or diesel.”
How should the package be financed?
The money will come from three different pots. The 2.75 billion euros for the reduction in electricity tax must be financed from the normal federal budget. The federal government is just in time, because next Thursday the budget committee in the Bundestag will approve the budget for 2024. Finance Minister Lindner actually sees little room for maneuver. However, the latest tax estimate brought an additional 2.3 billion, and the federal government is also allowed to take on a little more debt than previously planned due to the weak economy. That’s why it’s feasible. “All measures are financed within the framework of the debt brake,” emphasized Lindner.
The change in electricity price compensation affects the Climate and Transformation Fund, which exists alongside the federal budget specifically for climate protection expenditure. It is actually considered to be oversubscribed for a long time because the federal government is constantly pushing new programs into the fund. But usually not all of the planned funds are used. The subsidy for network fees comes from another secondary fund, the well-filled economic stabilization fund.
Has this all been decided yet?
No, so far it has only been an agreement between the Chancellery, the Ministry of Economic Affairs and the Ministry of Finance. The reduction in electricity tax must now be put into law by the Ministry of Finance, which will then go to the Bundestag. There is not much time for the usual parliamentary procedure, as the discharge is scheduled to take effect as early as 2024.
Why should companies save energy now?
The environmental organization Greenpeace raises these questions. “The measures adopted today undermine incentives to reduce energy consumption and emissions,” complained energy expert Bastian Neuwirth. “In order to promote the climate-friendly restructuring of the economy, it should rather specifically support companies in switching to energy-efficient production processes using renewable energies.”
The President of the German Institute for Economic Research, Marcel Fratzscher, spoke of a serious mistake. “The federal government’s decision will accelerate deindustrialization in Germany, not slow it down. It will cement old structures, slow down new ideas and innovation, and more good jobs will be lost.” Achieving the climate goals for 2030 is becoming even more unlikely.
The Federal Association of Renewable Energy criticized the continuation of electricity price compensation. “Companies that have not yet committed themselves to switching to renewable energies will receive additional relief. Companies that have already made or are currently making the switch to renewable energies will be left empty-handed. This sends a completely wrong message.”
The issue was debated in politics and business for months. Who prevailed?
At first glance, Lindner, who brought up a reduction in the electricity tax to relieve the burden on industry, prevailed – expressly in contrast to Habeck’s idea of an electricity price for energy-intensive industry that would be subsidized with state money. Scholz had also always shown little interest in such an industrial electricity price.
At second glance the matter is less clear. In the end, the fact that there is any relief for parts of the industry is probably thanks to Habeck’s urging, at some point also flanked by the SPD parliamentary group.
Source: Stern
