The 2024 budget plan adopted by the German Federal Government in July includes the abolition of the electricity tax relief scheme for the German industry (“Spitzenausgleich”). This has been met with criticism from businesses and trade groups, who fear that an additional burden will be placed on energy-intensive industries.
Germany’s electricity duty was introduced in 1999 as part of the country’s eco-tax reform with a view to reducing electricity consumption and promoting the use of renewables. To cushion the blow for energy-intensive industries, the electricity tax relief scheme was created, which grants them a partial refund of their electricity tax bill. If the relief scheme is abolished, electricity duty could increase tenfold for many SMEs and hamper their competitiveness. This is a controversial topic given the expectation of higher electricity demand during the push for net zero and the already high electricity prices in Germany by international standards.
Finance Minister Christian Lindner was quoted in the Handelsblatt newspaper as saying that this would “carry out a wish long expressed by the Greens.” Max Schumacher, CEO of the German Foundry Association (BDG), believes that there is no longer clear justification for this view. “If we take a close look at the history of the eco-tax, there are legitimate doubts around the need for the abolition of this scheme and around its authorship,” he states.
The eco-tax, introduced by Environment Minister Jürgen Trittin, was supposed to help protect the environment while lightening the load of social security contributions. Since labour costs were a major burden for companies in Germany, instead of increasing the pension insurance contribution to over 20 percent, the decision was made to allocate the revenue from the eco-tax to the public pension scheme. The eco-tax was also intended to motivate both individual and commercial consumers to save energy. However, the eco-tax hit especially the energy-intensive industries harder than a pension insurance increase would have done – meaning that it ran counter to the intentions of the reform package, as it was ultimately labour that was taxed. As a result, these consumers received tax relief, which was determined according to a highly complex calculation.
“Then, like now, we had a Green economic affairs minister in Germany. Jürgen Trittin, as minister at the time, pushed ahead with the eco-tax reform and introduced the relief scheme in the process. This is because it not only serves an environmental purpose, but also has a role to play with regard to the labour market (described as a ‘double dividend’). So in my view, eliminating this relief would be a catastrophic misstep that would further jeopardise our prosperity and act as a catalyst for deindustrialisation in Germany. In doing this, we will not be saving our planet’s climate, but we will be taking major steps towards economic and social consequences in our country,” says Schumacher.
The Federation of German Industries (BDI) and other trade associations have also spoken out in favour of the support scheme. For example, Kerstin Andreae, chair of the executive board of the German Association of Energy and Water Industries (BDEW), says: “Eliminating the electricity tax relief scheme would impose an enormous extra financial burden on almost 9,000 businesses. They would have to pay an additional €1.5 billion in electricity taxes every year from 2024.” She adds: “Considering this unprecedented push towards net zero we are engaged in, our view is that a hidden tax increase, such as the abolition of the relief scheme, sends the wrong signal. To the contrary, relief for the German economy is more urgent today than ever before, because the German electricity tax burden is many times higher than required by the EU’s Energy Taxation Directive. The German electricity duty rate is at least 20 times higher than the EU-mandated minimum rate, which means it is also significantly higher than the electricity tax rate in other European countries. With that in mind, we are calling for electricity duty to be reduced to the minimum permitted under European law.”
For months, the German Foundry Association and the Alliance for a Fair Energy Transition (“Bündnis Faire Energiewende”) have been demanding the introduction of industrial electricity pricing that ensures energy-intensive industries remain competitive. The prospective scrapping of the electricity tax relief scheme further exacerbates the situation in these industries instead of offering them adequate relief. Max Schumacher makes a final appeal to Germany’s ruling coalition on LinkedIn: “Dear Federal Government, by doing this, you are not creating incentives to cut CO2 – you are sending a clear anti-industry signal. Let’s find a better solution together here.”
