Many German companies have to compete internationally with their products. The new arrangement for carbon dioxide pricing that has been in place in Germany since the start of the year, can be detrimental for companies if competitors from abroad do not have to pay a similar price for their carbon emissions. In these cases, German companies cannot offset additional costs through product prices. This may give rise to the risk that production is moved abroad, where it may lead to even higher total emissions. The term “carbon leakage” is used to describe this phenomenon.

A regulation designed to prevent carbon leakage

The goal is to enable German companies to remain internationally competitive and to keep jobs in Germany. To this end, the regulation to prevent carbon leakage provides for financial compensation for companies engaging in cross-border competition. Carbon leakage subsidies are generally available to all affected industries. 

To qualify, companies must commit to take climate protection measures. These include measures for improving energy efficiency and reducing carbon dioxide emissions.

Before the new support scheme can enter into force, it must be approved by the EU Commission.

The national emissions trading scheme has been in place since 1 January 2021. Through this scheme, the Federal Government supplements the European emissions trading system that is already in place for the energy sector, energy-intensive industries and air traffic within Europe. Carbon dioxide emissions now come at a price in the areas of traffic and heat, too. From a macroeconomic point of view, carbon dioxide pricing is considered to be the most cost-efficient way to reduce emissions and reach climate goals. The new carbon dioxide price means that it is now more expensive to use fossil fuels. As a result, it has become more worthwhile to use climate-friendly technologies such as heating pumps or electric mobility, as well as to save energy or opt for renewable energies.