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German Government Approves Climate Plan

Friday, October 4, 2019

On October 1, 2019, the German Federal Cabinet approved financing of EUR54bn (USD59bn) for the Climate Protection Program 2030, which includes the introduction of carbon pricing, as well as other tax measures intended to encourage the use of cleaner forms of transport.

Under the program, a system of carbon pricing will be introduced for the transport and building sectors, which are not currently covered by the European Union Emissions Trading Scheme. This will entail the introduction of emissions allowances at EUR10 per tonne of CO2 in 2021, rising to EUR35 per tonne in 2025.

From 2026, carbon permits will 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. From 2026, the number of emissions permits will be fixed, before declining on an annual basis in accordance with Germany's emissions reductions targets. The minimum and maximum carbon prices for 2027 and beyond will be decided in 2025, the Government said.

Under another measure, road tax will be based on a vehicle's CO2 emissions to encourage motorists to switch to vehicles with low or no emissions. This system will begin for vehicle registrations from January 1, 2021, and will see the introduction of two tax bands above emissions of 95g of CO2 per km.

The Government has also agreed to reduce the rate of value-added tax on train fares for long distance journeys from 19 to seven percent from January 1, 2020. Currently, this reduced rate applies only to fares for journeys of up to 50km.

The plan also envisages the presentation by the Government of a new law to increase the aviation tax by January 1, 2020. This tax is currently levied on tickets for both domestic and international airlines at rates of EUR7.50, EUR23.43, and EUR42.18 depending on the distance traveled.