Foundations in place for CO2 pricing

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Cabinet takes decision on national emissions trading Foundations in place for CO2 pricing

As of 2021 the German government will introduce CO2 pricing for the heating and transport sectors. A national CO2 emissions trading scheme will put a price on emissions of greenhouse gases generated by heating and driving. The Cabinet has adopted a new bill that will put in place a national certificate trading system for fuel-generated emissions.

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Two chimneys from industrial plants seen through a cloud of smoke

By introducing CO2 pricing, the German government has put in place an incentive for climate-friendly economic activity

Photo: imago images / Future Image

Companies trading in heating oil, natural gas, petrol and diesel will have to pay the price of CO2 as of 2021. They will be required to acquire pollution rights in the form of emissions certificates for the greenhouse gas emissions caused by their products. This is to be translated into practice by the new national emissions trading scheme.

The bill now adopted by the Cabinet specifies how the national emissions trading scheme is to be organised. The measure is part of the German government’s Climate Action Programme 2030.

Incentives for climate action

To date there has been no effective price mechanism that would illustrate the intensity of CO2 emissions caused by fossil fuels in the heating and transport sectors. These sectors are not covered by the European emissions trading system.

The new CO2 pricing mechanism is intended to make climate-damaging heating and driving more expensive. It is intended to provide an incentive to switch to climate-appropriate technologies like heat pumps and electric mobility, as well as saving more energy and using renewables.

Giving businesses and people a certain basis on which to plan

In the Mediation Committee, the federal and state governments have agreed to set the CO2 price at 25 euros initially as of January 2021. Thereafter, the price will rise, step by step, to 55 euros in 2025. For 2026 there is to be a price corridor of between 55 and 65 euros. In early 2020 the German government aims to start new legislative proceedings to amend the Fuel Emissions Trading Act (Brennstoffemissionshandelsgestz), which is already on the statute books, accordingly.

The German government categorically rejects placing a dual burden on industrial plants, which are already part of the European emissions trading system. The bill provides for compensation and other measures to relieve burdens on affected companies.

Limited number of certificates

After a five-year introductory phase, the pollutions rights must be bought at auction as of 2026. The total number of CO2 emissions certificates will be limited to achieve climate targets. The market will then set the price, in line with the law of demand and supply, but the price should be at least 35 euros a tonne and no more than 60 euros a tonne CO2 emitted.

Relieving the burden on individuals

The German government will invest the additional income generated by CO2 pricing in measures under the Climate Action Programme – in climate-friendly transport and energy-efficient buildings for instance. Part of the revenue will also be passed back to individuals to compensate for the higher costs they face.