German trade union boss questions EU carbon price on petrol, gas

8 months ago 30

The introduction of an EU-wide carbon price on heating and road fuels in 2027 should be reconsidered, Yasmin Fahimi, president of the German trade union confederation (DGB), said in Berlin on Saturday (23 March).

The EU-wide CO2 levy on petrol, diesel, natural gas, heating oil and the like was agreed by the European Parliament and EU countries in 2023 as part of a larger reform of the EU’s carbon market, known as the Emissions Trading System (ETS).

The exact impact on consumer prices is still unknown. The European commission predicts an additional cost of €45 per tonne of CO2 (circa 10 cents per litre of petrol or diesel), and the ETS framework contains a mechanism to lower carbon prices if they exceed this level.

However, this is not a hard limit, and some carbon market experts doubt whether the price dampening mechanism will work. They instead expect prices to rise by between €100-300 per tonne of CO2, depending on what other emission reduction policies are implemented alongside ETS.

Asked about the measure on Saturday, Fahimi questioned the planned introduction, pointing at the social impact of carbon pricing and its impact on industrial competitiveness.

“Such decisions are not irrevocable,” Fahimi said, adding that he believed that “we urgently need to talk again about the economic and industrial policy consequences of this CO2 pathway”.

Germany already has a national levy of €45 per tonne of CO2, and Fahimi argued the county has already “reached the limits of what CO2 pricing can really achieve in order to create appropriate incentives on the one hand, but not social defects on the other”, adding that “we urgently need other instruments for this”.

The ETS framework includes an €87 billion Social Climate Fund which is aims to limit the financial impact on poorer households.

Fahimi — a former politician of Germany’s governing party SPD (S&D) — also pointed at the threat of deindustrialisation. “I’m not one of those people who want to tell scary stories all the time. But it is real,” she said, referring to the country’s shrinking industrial output.

Under the ETS, companies selling petrol and diesel and heating fuels will have to buy emission certificates. The number of certificates made available will decrease each year, in line with EU climate targets. The costs of purchasing certificates are expected to be passed on to consumers.

The price increases are intended to incentivise producers and consumers to favour lower-carbon alternatives – for example electric vehicles instead of petrol-fuelled cars, or heat pumps instead of gas boilers.

Ricarda Lang, co-leader of Germany’s Green party, acknowledged the danger of a price hike at petrol stations.

“This is actually what we are heading towards, in the current situation, that the carbon price is threatening to skyrocket in 2027,” she told a conference organised by German NGO FiscalFuture.

This should be “prepared” by establishing a mechanism that would repay revenues from carbon pricing to citizens, known as climate bonus, she added.

While Germany currently uses revenue from national and EU carbon pricing to support decarbonisation efforts of industries and households, these “investments have to be made by other means at this point”, Lang said. Further government support to help consumers switch to climate-friendly heating systems was also needed, she added.

[Edited by Donagh Cagney/Zoran Radosavljevic]