Germany’s proven reserves of oil and natural gas are modest and have been dwindling in recent years after decades of production. As of 2018, indigenous production met 3.7% of the country’s crude-oil use, 8% of its natural-gas use, and 55.2% of the country’s coal use. Once considered the engine of its economy, Germany’s hard-coal mining industry closed its last active mine on December 2018 with the government also ending most direct financial support to this industry, although in 2022 to alleviate the energy crisis, the German government ordered the temporary reactivation and postponed decommissioning of coal plants to substitute gas in the power system. Germany remains one of the world’s largest producers of lignite, which is extracted from open-cast mines, which does not receive direct support.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Germany
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
Germany has a relatively balanced mix of fuels in its total energy supply with a significant contribution from renewables, 16% in 2021. By 2025, 40-45% of electricity consumed in Germany is to derive from renewables. This is the aim set out in the Renewable Energy Sources Act. However, following the government’s decision to phase out nuclear energy production by 2022 in the wake of the events in Fukushima, the share of electricity produced from lignite in 2013 rose to 25%, its highest level since 1990, until slightly declining again to around 20.1% in 2022. In January 2020, the German Administration tabled a proposed coal exit law that foresees to end the country’s coal-fired power generation by 2038 at the latest and achieve a 65% renewable power generation mix by 2030.
The German energy industry has traditionally been privately owned, though there are still many small electricity and gas distribution companies that are either wholly or partially owned by municipalities. In contrast to the coal industry, the German oil industry retains a relatively large number of operators and ranks among the largest oil refiners in the world. The German oil industry is fully liberalised, with no government ownership.
Since the Energy Industry Act of 1998, German grid operators have been subject to regulation by the Federal Network Agency (Bundesnetzagentur) and by regulatory authorities in the individual German states (Länder). The gas sector is also regulated by the Federal Network Agency, although Länder authorities oversee German municipal utilities (known as Stadtwerke) that sell gas to distributors and end users. Two dominant players, E.ON and RWE, continue to retain large market shares in both the natural-gas and electricity markets.
Energy prices and taxes
Prices of all forms of energy in Germany are set freely by the market, as required by EU competition law. Energy products are also subject to VAT at a standard rate of 19%, with the current rate in effect since 2007. Electricity is subject to a series of levies and taxes, for example an EEG surcharge (EEG-Zuschlag) to support renewable electricity producers, a CHP levy (KWK-Zuschlag) to finance eligible CHP plants, and an electricity duty (Stromsteuer) following the Ecological Tax Reform Act (Gesetz zum Einstieg in die ökologische Steuerreform) in 1999. In addition, modifications were made to the Mineral Oil Duty Act, including gradual increases in the tax rate for fuel. In 2006, the Mineral Oil Duty Act was replaced by the Energy Duty Act, which for the first time provided for taxation of hard coal and lignite used for energy purposes.
Figure 2. Total tax rebates and support for fossil fuels in Germany
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
Although 2018 had marked the end of coal mining in Germany, the energy crisis from 2022 resulting from the Russian Federation’s war of aggression against Ukraine forced the Scholz administration to reopen 27 coal mines until March 2024. German government created a "gas replacement reserve" with a total capacity of 11.6 GW. This includes 1.9 GW of lignite and 4.3 GW of hard coal power plants which are allowed to return to the market until 2024 Since the start of the COVID-19 pandemic at the beginning of 2020, Germany has injected around EUR 25.2 billion to finance energy from fossil fuels through new or modified policies.
In August 2020, the Act to Reduce and End Coal-Powered Energy and Amend Other Laws (Coal Phase-Out Act) entered into force. The act offers financial compensation to operators of coal-fired plants in which no new coal-fired plants may start to operate after 14 August 2020, except those already with a licence before 29 January 2020. In addition, it amends the German Renewable Energy Sources Act to codify the goal of 65% renewable energy share by 2030. The Structural Support for Coal Regions Act also entered into force providing lignite-coal regions with financial aid of up to EUR 14 billion up until 2038 to deal with labour market and structural changes. Hard-coal regions will receive financial aid of up to EUR 1.09 billion, with a further EUR 26 billion of support funds for the creation of up to 5 000 additional jobs in federal agencies and related infrastructure projects in the coal regions.
In October 2020, Germany’s lower house of parliament approved a national emissions trading system (BEHG) on greenhouse gas emissions, starting 2021 with initially fixed prices in the period between 2021 and 2025. After this period, retail prices of motor vehicle fuels such as gasoline, diesel, heating oil and natural gas will rise. The move envisages a tax of EUR 25 per tonne of carbon dioxide equivalent in 2021, rising to EUR 55 per tonne in 2025. In 2021, gasoline prices rose by about EUR 0.07/litre and diesel by EUR 0.08/litre because of this measure.
Latest data in 2021 indicate that the bulk of support measures in Germany benefits the industrial and agriculture sectors (55% of total support estimates ― TSE), the electricity generation sector (23% of TSE) and the production sector (14% of TSE) specifically those related to coal. Throughout the year 2022, the German government established three aid packages in order to alleviate the energy crisis and combat inflation. The first relief package was worth nearly EUR 16 billion, the second about EUR 14 billion, and the third EUR 65 billion. The coalition administration unveiled specific measures on 9 January 2022 to assist low-income households pay their entire heating costs. Additionally, the state provided low-income households with a EUR 130 million package of one-time incentives, which were paid during the summer when households received their energy provider bills.
A first round of relief measures was approved in February 2022 and comprised an increase in commuter benefits, a lump-sum payment of EUR 135 for students and vulnerable residents, tax breaks on income taxes, higher payments for needy children (an additional EUR 20 per child per month), and a EUR 100 subsidy for unemployed persons. A month later, the ruling coalition reached an agreement on new policies worth around EUR 16 billion, including a three-month temporary tax cut that would lower fuel costs by 30 cents for gasoline and 14 cents for diesel.
In June, a new program was launched by the government. A few of the measures in the package include increasing the use of coal power plants in place of gas-fuelled ones; beginning the design of a new gas auction model that should encourage industrial gas consumers to conserve gas; providing lines of credit to gas storage companies; and reiterating support for businesses that are heavily dependent on energy and trade and are particularly impacted by increases in the cost of natural gas and electricity.
The German government decided to bail out power provider Uniper in July 2022 with a EUR 17 billion rescue package and a few weeks later, the government declared an energy surcharge of 1.5 to 5 cents per KWh.
On 4 September, the German government pledged an additional EUR 65 billion to combat inflation and to assist people facing high energy costs. The plan includes funding and support for a profit cap on energy businesses across the European Union, a freeze on the cost of power used for basic use, and subsidies for electricity systems to tamp down price increases.
Germany launched its most comprehensive strategy to address rising gas prices on 29 September 2022. It serves as an "economic defence shield" worth EUR 200 billion.
The fiscal cost of support measures for fossil fuels in Germany was estimated at EUR 20.32 billion in 2022 (Table 1). Thirty-six per cent (36%) was directed at end user beneficiaries, as opposed to 64% directed to firms. Support was mainly given out in the form of direct transfers (EUR 12.35 billion) accounting for 61% of the total fiscal cost of support measures. Tax expenditures amounted to EUR 7.97 billion.
The fiscal cost of support measures for fossil fuels has increased by 140% since 2017. Since last year, tax expenditures have increased by 40%, from EUR 5.79 billion to EUR 7.97 billion and direct transfers increased by 410%, from EUR 0.88 billion to EUR 12.35 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
6.518 |
6.556 |
6.060 |
5.497 |
5.787 |
7.969 |
|
Direct transfers |
1.957 |
0.973 |
1.761 |
2.799 |
0.883 |
12.354 |
|
Total |
8.475 |
7.529 |
7.821 |
8.296 |
6.671 |
20.323 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Reduction of VAT on gas prices |
2.000 |
(Started in 2022) |
2.000 |
|
|
Energy tax advantage for electricity generation |
1.762 |
1.800 |
-0.038 |
|
|
Electricity tax advantage for companies in the manufacturing sector in special cases (tax cap) |
0.701 |
0.826 |
-0.124 |
|
|
Direct transfers |
||||
|
Grant programme for energy intensive fims |
3.821 |
(Started in 2022) |
3.821 |
|
|
Pump subsidies through a temporary rebate |
3.440 |
(Started in 2022) |
3.440 |
|
|
Price cap on natural gas for heating purposes |
3.294 |
(Started in 2022) |
3.294 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Reduction of VAT on gas prices |
To compensate for the new gas procurement levy, the VAT on all gas consumption will be reduced at the same time Limited until the end of March 2024, the reduced tax rate of 7% will apply to gas consumption instead of the normal tax rate of 19%. This will provide consumers with notice and the State does not enrich itself from the rising gas prices. Lower incomes pay a relatively higher share of heating costs and will be disproportionately relieved by this tax reduction relative to their income. When the reduction comes into effect on 1 October 2022, this measure is expected to have a direct anti-inflationary effect. |
|
Energy tax advantage for electricity generation |
Complete tax exemption (coal only) or tax relief for energy products that are used to generate electricity in stationary systems with a nominal electrical output of more than 2 megawatts (MW). The use of energy products in systems smaller than 2 MW has also been exempt from energy tax since 1 January 2018, if the electricity generated is subject to the electricity tax. |
|
Electricity tax advantage for companies in the manufacturing sector in special cases (tax cap) |
This measure (Stromsteuerbegünstigung für Unternehmen des Produzierenden Gewerbes in Sonderfällen) is closely related to the electricity-tax-relief for manufacturing companies (measure above, Deu_te_27). Following the introduction in Germany of a new “ecotax” reform in 1999, pension contributions were reduced to compensate German companies for the higher taxes paid on energy inputs. It provides certain manufacturing companies with an additional tax relief of up to 90% of the remaining electricity tax, taking into account the general tax relief for companies in the manufacturing sector (measure above). Additionally, the final reduction is depending on the sum the beneficiary saved by the reduction of the employers contributions to the pension insurance-system since 1999 in comparison to the actual pension contributions. To apply for the tax reduction the manufacturing sector in Germany has to fulfil general energy-efficiency goals and the beneficiary companies have to prove, that they operate an energy management system. The measure should prevent the deterioration of the international competitive position of goods produced in Germany and traded internationally as well as preventing a relocation of production in countries with eventually lower climate protection standards |
|
Grant programme for energy intensive fims |
This measure makes part of the fourth pillar of the German government's package of measures for companies that are particularly affected by the consequences of the war between Russia and Ukraine. Eligible energy- and trade-intensive companies can receive a subsidy of up to EUR 50 million for their increased natural gas and electricity costs. The aid programme has a planned total volume of up to EUR 5 billion. The program is implemented by the Federal Office of Economics and Export Control (BAFA). With this program, the federal government is subsidizing a share of the additional natural gas and electricity costs from February to September 2022, insofar as the price has more than doubled compared to the average price in 2021. The proportion is calculated in three stages according to the extent to which the companies are affected and is generally calculated as follows: a) 30% of the price difference (subsidy rate) and up to EUR 2 million will be paid to companies that belong to the Climate, Environment and Energy Aid Guidelines (KUEBLL) in an energy- and trade-intensive sector and can prove that they have at least 3% energy procurement costs; b) 50% of the price difference and up to EUR 25 million will be paid to companies that meet the aforementioned conditions and also prove an operating loss in the respective month due to the additional energy costs. According to the requirements of the TCF, earnings before interest, taxes, depreciation and amortization (EBITDA) are used to calculate the operating loss. The subsidy may not exceed 80% of the operating loss; and c) 70% of the price difference and up to EUR 50 million will be paid to companies from the 1 particularly affected sectors listed in Annex 26 of the TCF (including Chemicals, glass, steel, metals, ceramics) that meet all of the above requirements. |
|
Pump subsidies through a temporary rebate |
For the period from June to August 2022, the energy tax on fuels is to be reduced to the European minimum in order to reduce the current high prices at the pump. The tax relief for petrol is just under 30 cents per litre, and for diesel it is 14 cents per litre. The federal government expects reduced tax revenues of EUR 3.15 billion. The rebate is part of the government's relief package, which aims to cushion the current high inflation. |
|
Price cap on natural gas for heating purposes |
For private households, small and medium-sized enterprises with a gas consumption of less than 1.5 million kWh per year, as well as care facilities, research and educational institutions, the gas price will be capped at 12 cents gross per kilowatt hour from March 2023 to December 2023, for 80% of the previous year's annual consumption. For all those who already pay more, the monthly deductions are reduced, and those who also save energy can get money back with the annual billing. Additionally, gas and heat suppliers have waived the monthly upfront payment in December 2022 and get reimbursed by the government. The price cap for natural gas and heat will apply from 1 March 2023 until December 2023. In March, the relief amounts for January and February 2023 will also be credited retroactively. This will protect people and small and medium-sized enterprises from very sharp price increases for the whole of 2023 and into spring 2024. From January 2023, the temporary gas price brake is also intended to help industry affected by high prices to secure production and employment. The price per kilowatt hour will be capped at 7 cents net for industrial customers, for 70% of the previous year's consumption. This discount on the gas and heat bill is meant to subsidise 80% of previous gas consumption at a reduced price for households and SMEs and 70% for industrial clients, with caps and conditionality for enterprises based on EU state aid rules (Temporary Crisis Framework). |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.