German 'carbon cap' eco-policy to increase price of fossil fuel
German officials have outlined a new policy which intends to cut climate change through the use of a tax on carbon emissions in the transport and heating sectors. After marathon overnight talks at Berlin’s chancellery, the members of Angela Merkel’s ruling CDU/CSU alliance agreed terms with their coalition partners the SPD.
Why are they doing it?
Ecological concerns have become politically important. Although the Greens party finished sixth at the 2017 federal election, their support has surged since: in May’s European elections their 20.5 percent share of the vote was second only to Merkel’s alliance.
So why was there disagreement?
The centre-left SPD, pushed into third in the European elections and wanting to prove both their eco credentials and their relevance within the coalition, pushed for a carbon dioxide tax. However, Merkel’s alliance wanted a market-based scheme. It seems they have won the argument in the Chancellery; now they have to win over the public, and it may not be coincidental that their self-imposed deadline has created an eco announcement on a day of global climate protests.
How does it work?
It will be the world’s largest experiment in capping carbon emissions. Wholesalers of fossil fuels will be forced to record the carbon content of their sales; to sell more than a certain amount - the carbon cap’ - they will have to purchase certificates, which can also be traded between distributors.
Why is it likely to be controversial?
As good as its intentions are, it is a tax, the price of which will inevitably be passed to consumers. Initial estimates are that it would push the cost of petrol or diesel up by 10 euro cents per liter. Good intentions frequently come at a cost, but this is a badly-timed addition to the financial burden: after a decade-long boom the economy is slowing to such a degree that some say recession is imminent.
Doesn’t Germany already have emission targets?
Yes, and it’s not doing very well at hitting them. There is a commitment to the EU to cut carbon emissions by 55 percent between 1990 and 2030, and with transport producing 20 percent (and rising) of the country’s emissions, Merkel has set a target of six million electric and hybrid vehicles on German roads by the end of the next decade. At the moment there are just 480,000.
Isn’t the car industry important to Germany?
Crucially: there are almost a million jobs in the sector. But the feeling is that compared to US and Chinese rivals, German manufacturers have been slow to transfer their customers to next-generation cars. In the medium term, perhaps the rising cost of fossil fuels will help persuade consumers to change.
Isn’t there already a similar EU emissions scheme?
Carbon trading was enshrined in the 1997 Kyoto Protocol as a way to control emissions. Launched in 2005, the European Union Emission Trading Scheme was the first emission-trading plan and is still the world’s biggest. However, it applies to a different usage of greenhouse gases: by power generators and (some) industrial plants, but not transport or heat. These tend to be more obviously and immediately reflected in the customer’s pocket.
What happens next?
This is just a statement of intent; legislation is expected to follow later in the year. The scheme will be carefully monitored not just in Europe but around the world, with other governments gauging Germany’s success - or otherwise - in persuading consumers to change.
