Germany will increase a levy on polluting fossil fuels used in housing and transportation next year as planned, but senior coalition officials are at odds over the magnitude of the rise given the impact of persistently high inflation on consumers in Europe’s biggest economy.
Finance Minister Christian Lindner wants to limit the increase to €40 ($44) per ton, from 30 euros currently, or roughly 3 cents more per liter of gasoline or diesel, according to people familiar with his thinking.
With annual inflation still north of 6%, he’s keen to spare citizens and companies from more pain and avoid providing the far-right AfD party with additional ammunition to attack the government, said the people, who asked not to be identified discussing confidential information.
Economy Minister Robert Habeck, the vice chancellor and a senior member of the Greens, is under pressure from his party base and parliamentary group to push for an increase to 45 euros, the level agreed before the energy crisis triggered by Russia’s full-scale invasion of Ukraine, the people said. The two ministers are expected to come to an agreement before the end of this month, the people added.
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Spokespeople for the finance and economy ministries said talks are ongoing and declined to comment on specific plans for the carbon price. Habeck’s department takes the lead on setting the carbon price, while Lindner’s ministry is involved in the consultation process and allocating the revenue it yields.
To help reach its goal of climate neutrality by 2045, Germany introduced its carbon price in 2021 at €25 per ton and raised it the following year to €30.
It was initially meant to rise to €35 this year. After Russia attacked Ukraine and the Kremlin halted gas deliveries to Germany, Chancellor Olaf Scholz’s ruling coalition decided to postpone the increase to shield households and companies from even higher energy costs.
According to current legislation, the price would automatically rise to €35 at the start of next year and to €45 at the beginning of 2025. After that there would be a range of €55-€65, with the price set by an emissions trading system.
Habeck has not yet decided on the extent of the coming increase and is discussing the step with his economic advisers, according to a government official familiar with his thinking.
A higher price would provide additional income for the government’s climate and transformation fund, known as the KTF.
The mechanism, which is not part of the regular federal budget, has become a key tool for Habeck to finance green subsidies and other measures such as 10 billion euros in aid for U.S. chipmaker Intel for the construction of a cutting-edge semiconductor facility in eastern Germany.
At the same time, lifting the carbon price is likely to stoke frustration among voters — especially car drivers and commuters who are already struggling with higher bills at the gas station.
--With assistance from Kamil Kowalcze.