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German Cabinet Agrees Hike To Carbon Taxes

Thursday, May 28, 2020

On May 20, 2020, the German Cabinet agreed on new regulations that will set higher carbon prices from 2021 than those originally envisaged in the Government's Climate Protection Program, which was partially approved by parliament in November 2019.

Initially, the scheme entailed the introduction of emissions allowances at EUR10 (USD11) per tonne of CO2 in 2021, rising to EUR35 per tonne in 2025. Then, from 2026, carbon permits were to be auctioned, with the program setting a minimum price of EUR35 per tonne and a maximum price of EUR60 per tonne in this second phase.

The changes mean that carbon allowances will be set at EUR25 per tonne in 2021 and will increase to EUR55 per tonne by 2025. From 2026, carbon permits will be auctioned within a price band of EUR55 to EUR65 per tonne.

The changes were agreed following discussions regarding the carbon price in parliament's mediation committee, which includes members of the lower and upper houses. However, the new prices still need parliamentary approval before they can enter into effect in 2021.

The carbon pricing scheme will cover sectors not currently included in the European Union Emissions Trading Scheme. These include the transport and building sectors, and greenhouse gases from heating.