Germany introduces carbon price for building and transport sector emissions from 2021
On 20 September 2019 the German government released the cornerstones of its Climate Protection Program 2030, a package of measures to reach its 2030 climate targets that includes a CO2 pricing mechanism for fuels used in the building and transport sector starting 2021.
The carbon pricing mechanism will come in the form of a national ETS with a fixed price per tCO2 in the first phase followed by a minimum and maximum price per tCO2 in the second phase. Since GHG emissions from Germany’s energy, industry, and domestic aviation sectors are already covered by the EU ETS, the introduction of the national ETS will lead to all major sectors in Germany facing a CO2 price by 2021.
According to the announcement, the CO2 price will be charged at the upstream level to fuel importers and apply to heating oil, LPG, natural gas, coal, petrol, and diesel. The government will start with a fixed price on CO2 emissions from the building and transport sectors by issuing allowances for EUR 10/tCO2 (USD 11) in 2021. This price will double in 2022 to EUR 20/tCO2 (USD 22) and rise EUR 5/tCO2 per year afterwards, reaching EUR 35/tCO2 (USD 38) in 2025. From 2026 onwards, a cap on emissions will replace the fixed price and decline each year. Allowances will be allocated through auctions, and the cap will be based on Germany’s reduction targets for the non-EU ETS sectors as defined in the EU Effort Sharing Regulation. In 2026 auctions of allowances will contain a price corridor of a minimum EUR 35/tCO2 (USD 38) and a maximum EUR 60 tCO2 (USD 66).
A potential price corridor for the time after 2026 is yet to be decided. In case the allocation of allowances within the national ETS exceeds the available German emissions budget set out in the EU Effort Sharing Regulation, allowances for emissions reductions will be purchased from other EU member states. Furthermore, the document states that the long-term goal is to integrate the building and transport sectors into the EU ETS. In addition and prior to that, the German government wants to work towards a moderate price floor in the EU ETS.
The new carbon pricing mechanism would mean that transport fuel prices for consumers would increase from EUR 0.03 per liter from in 2021 to EUR 0.09-EUR 0.15 per Liter in 2026. Revenue from selling allowances at the fixed price and from auctioning will be used for compensating consumers and financing the measures of the program.
