German liberals push for petrol price hike instead of combustion ban

Germany’s free-market FDP party, currently blocking the EU-wide phase-out of internal combustion engines for cars, has proposed tackling road transport carbon by increasing the price of petrol and diesel through national carbon pricing and giving the money back to citizens via a per-capita direct payment.

As transport emissions in Germany have barely fallen to date, pressure is increasing for government interventions to ensure alignment with climate targets, such as the controversial EU-proposed ban on the sale of new combustion-engine vehicles as of 2035.

The pro-market FDP party, which opposes the measure, has come forward with its own proposal for tackling transport emissions. The FDP, part of Germany’s three-party ruling coalition, wants to use a national emissions trading scheme for buildings and road transport as of 2024, until a similar European system comes into force in 2027.

“If we have the biggest task, we also need the most effective instrument,” Johannes Vogel, deputy head of the FDP, said in a TV interview on Monday (20 January), referring to emissions trading with a hard limit on carbon.

In practice, the proposal would see the existing carbon price for buildings and road transport, currently fixed at €30 per tonne of CO2 – which equals 8.4 cents per litre of petrol and 9.5 cents per litre of diesel according to German Automotive Club ADAC – be determined by market forces as of 2024.

According to experts, prices for petrol and diesel are likely to rise immediately if the proposal is implemented, due to the existing gap in emissions reductions in both the transport and building sectors.

Christian Flachsland, professor of sustainability at the Berlin-based Hertie School, told EURACTIV that “it is quite difficult to say” how high prices would be.

Depending on factors such as additional policy measures, “I would expect, all in all, the prices would easily go to between €100 and €200 [per tonne of CO2], also very quickly and immediately”, he added.

Using the ADAC calculation, a carbon price of €100 would equal a price surcharge of 28 cents per litre of petrol and 31 cents per litre of diesel.

From the perspective of environmental NGOs, while considering higher carbon prices is welcomed, the FDP proposal does not sufficiently address possible social consequences.

“We reject the FDP proposal because free pricing would lead to unpredictable and probably very high prices,” Anne Gläser of NGO Germanwatch told EURACTIV.

“No one can tell us no, don’t worry, it won’t exceed €150 or so,” she said. “That means the risk is extremely high that prices become […] so high that it is socially unacceptable.”

“From our point of view, we would definitely need a price ceiling, ideally a price corridor with a minimum price and a maximum price,” she said, adding that “under no circumstances can we now allow free-floating pricing”.

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Paying back revenues through a per-capita ‘climate bonus’

To compensate for the increased prices, the FDP supports the idea that all German citizens should receive an annual “climate bonus”, a lump-sum payment which would redistribute all revenues from the carbon pricing scheme back to citizens.

It is important to “always link emissions trading with social compensation through the climate bonus agreed in the [German] coalition agreement,” Köhler told EURACTIV.

As a consequence, citizens with a lower carbon footprint would receive more money back than they have to pay additionally, while those with high carbon emissions would pay more than they get back.

As research shows, citizens in lower income groups would – on average – be better off after the introduction of such a scheme, but huge differences appear between people with different types of heating systems, living arrangements, commuting types, and distances.

For researcher Flachsland, the proposal kicks off an urgently needed debate on carbon pricing measures.

“I think the big question with the FDP proposal is whether the politicians and the population are prepared to withstand such a CO2 price shock, as far as redistribution is concerned, and understanding why this is being done in the first place,” Flachsland said.

This discussion had to move forward anyway, Flachsland stressed, as “we now very likely have the ETS2 at the European level from 2027 and that is exactly that, it is a system with free-floating prices”.

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€45 price limit for European carbon price uncertain

The ETS2, agreed between EU institutions last December as part of a larger deal on the future of the EU’s carbon pricing scheme, aims to limit carbon prices for heating and transport fuels at €45, but this was by no means guaranteed, Flachsland said.

“That’s one of the communication problems,” he said. “It is said: We do this and achieve the goals, and that’s a price of €45. But that just doesn’t work, in my opinion.”

“Actually, no modelling expects prices of €45 there, we more likely have €100 to €300,” he said.

While the agreement reached between EU institutions foresees a price-dampening measure if a carbon price of €45 is exceeded, this could not necessarily guarantee that prices would not rise further, Flachsland said.

Depending on additional measures and technological developments, lower prices would theoretically be possible, but policymakers should also prepare for higher price scenarios, he stressed.

To prepare for the start of the ETS2, he said, EU countries should urgently introduce measures to compensate vulnerable citizens for increasing carbon prices.

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