Germany gambles on green with carbon cap plan

by Reuters
Wednesday, 18 September 2019 12:49 GMT

Protesters sit on a sign during a demonstration against climate-damaging cars outside the venue of International Frankfurt Motorshow (IAA) in Frankfurt, Germany, September 15, 2019. REUTERS/Wolfgang Rattay

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The impact of climate change has shot up the list of Germans' priorities, polls show, with the Greens now vying with the conservatives to lead in opinion surveys

By Thomas Escritt

BERLIN, Sept 18 (Reuters) - The German government is set to present a new climate-change policy on Friday that will likely include a carbon-pricing initiative to cap the use of fossil fuels in Europe's largest economy, where the Greens party is enjoying a surge in support.

The plan - the world's largest experiment so far in capping carbon emissions from buildings and transportation - would require fossil fuel suppliers to buy certificates to trade, pushing up their costs, three sources familiar with the plan said.

Set to be signed off at a cabinet meeting on Friday, it is a political gamble: it may help the government stem a recent surge in votes for the Greens but risks exposing industry to extra pressure at a time when the economy may already be in recession.

Environment Minister Svenja Schulze said on Monday: "We will agree a programme of multiple measures, but they will all go in the same direction: namely, reducing CO2 (emissions)."

Chancellor Angela Merkel's conservatives and her Social Democrat coalition partners are still thrashing out the details. With the economy slowing after a decade-long boom, anything that hits consumption is sure to come with a political price.

"It is a Herculean task," the chancellor said of the challenge Germany faced in cutting emissions and rewiring the economy for electricity when she opened the IAA car industry fair last week.

"As inhabitants and citizens of this planet, it is now up to us to ensure that ... we do everything humanly possible to keep the earth inhabitable for the future," said Finance Minister Olaf Scholz, a Social Democrat, on Monday.

Two unusually hot summers and the chord struck among many young Germans by the climate activism of Swedish schoolgirl Greta Thunberg have transformed the landscape for a government whose first act on taking office two years ago was to scrap as unachievable a self-imposed 2020 emissions cut target.

A commitment made to the European Union, of cutting carbon emissions by 55% compared to 1990 levels by 2030, still stands, though analysts warn that time is running short.

The impact of climate change has shot up the list of Germans' priorities, polls show, with the Greens now vying with the conservatives to lead in opinion surveys.

CORPORATE IMPACT

A slowing economy will test Germans' climate commitment.

Under the conservatives' proposal, likely to be modified by horse-trading with the SPD on Friday, certificates would be issued granting wholesalers of fossil fuels the right to sell amounts above a cap equivalent to a yet-to-be-determined volume of carbon.

The wholesalers could trade the certificates among themselves, and the extra cost would eventually be borne by consumers. Friday's meeting is expected to yield a roadmap. Concrete legislation is unlikely before later in the year.

"Even a relatively low tax of 30 euros per tonne of carbon dioxide equivalent would cost companies listed on the DAX a total of 5.2 billion euros a year," wrote analysts at Union Investment, with reference to Germany's blue-chip share index.

In an interview with Die Zeit, the head of the German Environment Agency, Dirk Messner, said that the starting carbon price should be 40 euros a tonne, rising to between 150 and 180 euros over the next decade.

But inaction comes with its own price, especially for a German car industry that has been buffeted in recent years by scandals including Volkswagen cheating on vehicle emissions tests.

Ministers worry that a sector that provides almost a million jobs is falling behind U.S. and Chinese firms in the race to switch to electric cars.

The coalition parties hope that by channelling some of the proceeds of the emissions trading scheme to the public they can soften the blow from the higher prices they will have to pay.

Proposals include grants for electric car buyers, measures to expand a network of charging stations and incentives for households to move to more efficient heating systems.

That has prompted some to fear that attempts to cushion the impact could shade into unhealthy protectionism.

"My worry is that the coalition is pursuing a harmful clientelism, supporting carmakers at taxpayers' and the climate's expense," Marcel Fratzscher, head of the German Economic Research Institute, told Handelsblatt newspaper.

Higher taxes for polluting vehicles and domestic flights are also under consideration.

With the economy slowing dramatically as a decade-long boom peters out, the government is facing calls from economists to use the environmental challenge as a reason to spend heavily on a big climate plan after years of fiscal prudence.

So far, it has resisted. The Greens, on a roll after a strong showing in European elections in May, scent an opportunity to build more momentum.

"The current government doesn't have the courage for a U-turn in transport policy," Cem Ozdemir, a senior Green legislator, told Die Welt. (Additional reporting by Markus Wacket, reporting and editing by Paul Carrel and Philippa Fletcher)

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