The German post-crisis recovery plan was unveiled by the coalition government on the night of June 3-4. With a total volume of €130 billion, and therefore much higher than initially expected, it provides for nearly €35 billion for climate-friendly investments, particularly in the transport sector and in the development of a hydrogen industry, partly based on the proposals made by Agora Energiewende.1 Although the initial assessment is rather positive, efforts are still required, particularly in the buildings sector, for the acceptability of renewable energies or the reduction of electricity taxation. The flagship measure of a transitional VAT reduction of 3 percentage points, which is preferable to a scrapping premium for cars but not specifically targeted at sustainable activities, could furthermore favour the consumption of fossil fuels. However, the recovery plan as presented sends a strong signal regarding the direction the German economic and climate policy will take, as the country will take over the rotating Presidency of the Council of the European Union as of July. 

The German recovery plan is based on three pillars, which will structure government action until 2021: short-term economic recovery (around €78 billion), investment in future-proof and green technologies (around €50 billion) and European and international solidarity (€3 billion in addition to the efforts provided for in the European Commission’s recovery plan).

Climate measures are found in the first two pillars. In the short term, a slight decrease in the EEG contribution 2 is expected to reduce the cost of electricity for small consumers (households and SMEs), at an estimated cost of €11 billion. This is a first step towards shifting the financing of support for renewable energies (RE) to the general budget, which will soon be supplemented by the CO2 tax, due to be introduced in Germany in 2021. This measure is to be compared with the approach taken by France with the reform of the contribution to the public electricity service (CSPE), favouring the electrification of uses in the longer term. Surprisingly, the government has also opted for the reduction in VAT of 3 percentage points from July 2020 to the end of the year in order to increase households’ purchasing power, at an estimated total cost of €20 billion. This measure does not specifically target the most sustainable modes of consumption and could even ultimately encourage the continued consumption of fossil fuels. For an efficient and just economic and climate policy, a more thorough reform of the RE support mechanism and electricity taxation should be favoured in order to improve households’ purchasing power and SMEs’ cash-flow in a sustainable way: it should aim at lowering the retail price of electricity and increasing the price of fossil energies through a rise in the price of CO2 in the non ETS (Emissions Trading system) sectors, namely building and transport.

In the longer term, a strong impetus is being given to the transport sector and hydrogen industry, while measures for the decarbonisation of the buildings sector would need to be reinforced.

1. See Agora Energiewende (2020). Dual-Benefit Stimulus for Germany – A Proposal for a Targeted 100 Billion Euro Growth and Investment Initiative.

2. The EEG contribution applies to the electricity bill, financing the feed-in premiums for the development of electric renewable energies (equivalent of the former CSPE in France). In its current form, it mainly affects households and SMEs as the electro-intensive industries are subject to exemptions. The contribution should be reduced to 6.5 c€/kWh as of 2021 (compared to 6.756 c€/kWh in 2020), and to 6 ct/kWh in 2022.

 

Read the full blog here.

This blog first appeared on the IDDRI site. 

Author: Murielle Gagnebin, Project Manager Franco-German Energy Policy, Agora Energiewende – IDDRI. 

Image courtesy of Wonder w via Flickr.

The views are those of the author and not necessarily those of ETTG.