Germany plans power tax cut, more subsidies to prop up industry amid rising prices

Germany’s ruling alliance has agreed a package of measures to help industry amid rising power prices over the next five years, including slashing electricity tax and expanding subsidy schemes that are already in place. The agreement also means that an earlier proposal by Economy Minister Robert Habeck to cap electricity prices for industry is now off the table, news agencies reported.

The set of relief measures, which will mainly help power-intensive producers, is estimated to be worth EUR 12 billion in 2024 alone, according to German Chancellor Olaf Scholz. By 2028, the package is expected to amount to EUR 28 billion, according to other government officials.

Germany’s industry has been affected by the natural gas crisis caused by the Russia-Ukraine war, while the country’s domestic electricity supply has diminished since it shut down its last three nuclear reactors earlier this year. The government recently gave the green light to restarting several coal-fired power units as part of efforts to avert electricity shortages this winter.

Greenpeace: Germany should offer targeted support to firms switching to clean energy

The proposal, which has yet to be debated and approved by the German parliament, has been generally welcomed by industry representatives. However, the plan has also been criticized for its potential to hamper decarbonization by allowing carbon-emitting activities to continue, according to reports.

Greenpeace, for example, said the planned measures will undermine incentives to reduce energy consumption and emissions. The NGO believes the German government should provide targeted support to companies switching to energy-efficient production with renewable energy sources, according to reports.

Cutting electricity tax, extending subsidy schemes, keeping grid fees in check

Specifically, the package includes lowering electricity tax in 2024 and 2025 to the minimum allowed by the European Union (EU) regulations, of 0.05 eurocents per kWh, from 1.537 eurocents per kWh currently. This measure could be extended until 2028 if the federal budget allows it.

The proposal also includes extending for five years the subsidy scheme for 350 German companies that compete on the international market. The scheme compensates them for part of the CO2 costs for electricity under the EU Emissions Trading System (EU ETS), while the plan also envisages abolishing the rule that the first gigawatt hour is not compensated.

The package also includes a five-year extension of the rule that limits total carbon emission trading costs for around 90 energy-intensive companies, as well as a state subsidy to limit the rise of grid fees in 2024.