With the Federal Climate Change Act, Germany has committed itself to reduce its CO2 emissions to almost zero by 2050. For Germany to achieve this goal, more electricity must come from renewable energies; besides, houses, transport, and industry must become largely climate-neutral. Extensive investments are needed to accomplish this:
Distorted price signals
A cross-sectoral regulatory framework is necessary to coordinate the required investments in the coming decades and specifically avoid CO2 emissions. However, the burden of taxes, levies, and charges concerning the emissions caused, differs in the current system depending on the energy source.
Especially in the case of electricity, the share of “state cost components” (for example, EEG levy, network charges, electricity tax) is significantly higher than for gas or heating oil, for example – at least per ton of greenhouse gases emitted. This different burden on energy sources distorts the price signals and makes efficient cross-sectoral CO2 avoidance more difficult. From an economic point of view, uniform CO2 pricing would make sense, as the price signals would then be efficient concerning CO2 emissions.
With the Federal Climate Change Act, the German government is already attempting to equalize the taxes, levies, and charges regarding greenhouse gas emissions between sectors and energy sources. The EEG levy will now be capped, and electricity will thus not be further burdened in the future.
Furthermore, since January 2021, there has been a cross-sector CO2 price, which is imposed on all energy sources in the transport and building sectors according to their CO2 emissions. The price will initially be 25 euros per metric ton of CO2 and will rise to 55 euros per metric ton of CO2 by 2025. This means that heating oil, for example, will be just under 10 cents per liter more expensive from January 2021.
For existing taxes, levies, and charges to support cost-effective CO2 abatement, they must mirror the actual costs of energy and infrastructure use (“cost-reflectively”). Grid fees, for example, could be levied on a connection or performance basis, i.e., the operating-related component could be eliminated. In transport, likewise, taxes should reflect the actual costs of infrastructure use and other externalities (e.g., space requirements, noise, particulate matter emissions).