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CO2 price for transport and heating

Last updated: 11 February 2022

This policy sets a national trading system putting a price to GHG emissions for the heating and transport sectors, as is already the case for the energy sector and energy-intensive industry within the framework of the European emissions trading scheme. Companies trading in heating oil, natural gas, petrol and diesel are required to acquire pollution rights in the form of emission certificates. When a company places for example heating oil, liquefied petroleum gas, natural gas, coal, petrol or diesel on the market, it will need one certificate for every tonne of CO2 that will eventually be emitted by the products they place on the market. In this way, the Federal Government aims to incentivise the switch towards more sustainable heating and transportation, by rewarding low-carbon companies and penalising polluting ones. 
 
The federal and state governments set the CO2 price at 25 euros per tonne initially as of January 2021. Thereafter, the price is expected to rise, step by step, to 55 euros in 2025. As of 2026, the market will set the price, within a fixed band. The total quantity of certificates issued throughout Germany will be in line with the imperatives of German and European climate targets.

German government has to invest the additional income generated by CO2 pricing in measures related to climate-friendly transport and energy-efficient buildings, or pass it on to citizens and companies in the form of financial assistance and promotion measures such as a decrease of the electricity price.

To avoid the outsourcing of production to countries with lower environmental standards, the Federal Government issued an ordinance to introduce compensation measures for the most relevant firms. In return companies have to commit themselves to using an energy management system. Also, from 2023 they will be required to invest in economically viable climate change mitigation measures as identified by their energy management system. Such investments will have to amount to at least 50% of the compensation payment, or 80% from 2025 onwards. 
 
This measure is part of the German Climate Action Programme 2030, and it is expected to be a relevant financial source for it.

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