Merkel Plans Broad Emissions Levy in Last Major Climate Push

Brian Parkin and William Wilkes
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Oil and Gas Companies Targeted in Germany’s New Carbon Levy Plan

(Bloomberg) -- Oil and gas companies that supply Europe’s biggest energy market fuels for cars, trucks and heating may be soon be required to pay for carbon pollution allowances if a panel advising the government gets its way.Chancellor Angela Merkel this month started talks on how to force the transport and building industries to pay for their pollution, widening the number of sectors required to participate in the European Emissions Trading System, or ETS. Merkel hasn’t decided yet whether to push for extending the ETS to those industries or to impose a new tax on carbon. A panel advising Merkel and her ministers favors using the cap-and-trade market.Germany should copy Europe’s ETS and apply it nationally to heating and road emissions, Klaus Schmidt, the group’s co-chairman told reporters on Monday. Setting up separate platforms for trading permits in those sectors would enable the market to squeeze out polluting technologies like road and heating fuels. That’s provided floor and ceiling prices are set, he said.By compelling oil and gas companies like Royal Dutch Shell Plc, BP Plc, Total SA, Wintershall AG and Gazprom PJSC or their German units to buy pollution certificates, Merkel’s coalition would potentially retain the ability to steer CO2 reduction with precision by controlling auction volumes.While Germany has cut emissions from power production, pollution from automobiles, trucks and aircraft remain stubbornly high. Merkel, who as environment minister in the 1990s sketched some of the first international climate deals organized by the United Nations, in 2007 pledged her nation will cut emissions 40% by 2020 from 1990 levels. Germany is set to miss the target, senior ministers have said.In order to hasten carbon dioxide emission reductions, the group envisages forcing oil and gas companies to engage in “upstream permit auctions,” said Schmidt. The group declined to comment on envisaged floor prices for CO2 permits in transport or heating. The proposals “were very well received” by the government, Friedrich Breyer, the group’s co-head, told Bloomberg.Evidence is emerging from two recent sets of recommendations from panels close to the government that a version or versions of the ETS will be adopted by Merkel by September, when she plans to unveil CO2 cutting programs for transport and heating. For sure, “what’s clear,” said Schmidt, “is that there’s consensus that we must apply a singular, effective price on pollution” in those sectors.The question remains on the readiness of consumers to stomach higher prices for road and heating fuel including gas. Germany is getting a third of its oil and two thirds of its gas from Russia. The import bill totaled 38.5 billion euros ($43.4 billion) for oil and another 19 billion euros for gas, according to the Economy and Energy Ministry.Transport and heating contribute about 40% of Germany’s greenhouse gas output, tallies that have barely shifted in the last decade. Enrolling the sectors into new national ETS programs would mean about 90% of emissions of the economy would be covered by pollution trading.Germany and 27 other EU states are obliged under a so-called “effort-sharing” directive of the EU to widen CO2 reduction programs across the economy. For economists like Schmidt, introducing the market instrument of ETS to transport and heating would be a precursor to adding those industries to the Europe-wide ETS by 2030.To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.netTo contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars PaulssonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Chancellor Angela Merkel’s plan to make it more costly to pollute in Europe’s biggest economy will take another step forward on Friday when a panel of government advisers will present fresh proposals.

In what looks likely to be her last major contribution to Germany’s climate policy before stepping down in two year’s time, Merkel has made it a priority this summer to get coalition backing for putting a price on the transport and heating industries, sectors not covered by Europe’s emissions trading scheme. Together they represent more than a third of Germany’s greenhouse gases.

“Extreme weather events are becoming more frequent,” Merkel said in a Saturday podcast. Concerted action with wider pollution pricing needs to be agreed by the autumn, she said.

Germany has pledged to cut emissions by 55% by 2030, compared with 1990 levels. But by this year, the country had reduced CO2 output by only 30%.

Merkel faces immense risks to get the new policy right. Political polls and “Fridays for Future” demonstrations underline voters’ impatience with tardy progress in tackling climate pledges. At the same time, any move to put new fiscal burdens on fossil transport and heating fuels may come with a political price for Merkel.

Her party of Christian Democrats faces three state elections from September in eastern German states where the populist Alternative for Deutschland party have made inroads and many thousands of people are employed at coal plants and mines. The AfD oppose Merkel’s timetable to pull out of coal achieved by consensus earlier this year. And, hiking fuel and heating costs just as the economy begins to wobble may draw a backlash from the wider electorate too.

The policy options that will be outlined by the “Five Wise Ones” panel of economists on Friday mark an official start to cabinet deliberations on pricing CO2 that will roll on through the summer.

They join a raft of rival proposals from opposition parties, Merkel’s own Social Democrat allies, industry lobbies and think tanks that either champion the introduction of a new tax on transport and heating fuels, or the extension of the emissions trading scheme to those sectors.

Social Democrat Environment Minister Svenja Schulze favors a tax that can be raised annually and is linked to end-of-year rebates for less well-off consumers. Her stance is backed by think tanks including the DIW and the opposition Greens, who want to tax emissions in transport and heating at the equivalent cost of 40 euros per ton. That’s much higher than where permits are currently trading.

Beware of voter disgruntlement, Merkel’s CDU and its Bavarian Christian Social Union affiliate both reject the option of a new CO2 tax in favor of adjusting current fiscal instruments such as the transport fuel levy that raises about 60 billion euros annually.

Georg Nuesslein, a CSU lawmaker who’s helping frame caucus policy, backs extending a version of the European market to heating, gasoline and diesel, a proposal rejected by Schulze as too bureaucratic.

Merkel’s given no clue so far where she stands but does conspicuously avoid reference to the word “tax” in recent comments.

After receiving the panel’s proposals Friday, Merkel will summon a “Climate Cabinet” made up colleagues including the ministers for finance, for economy and energy and for the environment to thrash out proposals.

The group will meet on July 18, four times in August and plan to sign off on proposals on Sept. 20, according to an inter-ministerial document seen by Bloomberg.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.