Krautzberger: "A blind spot in climate protection"

Pace of environmentally harmful subsidies phase-out continues to falter

57 billion euros in costs borne by taxpayers

Euro bank notesClick to enlarge
Reduction of environmentally harmful subsidies creates the financial means for a sustainable policy.
Source: PhotoSG / Fotolia.com

Environmentally harmful subsidies in Germany continue to be in effect at an excessively high level and now total 57 billion euros, says a recent report by the German Environment Agency (UBA). More than 90 percent of these subsidies are a burden on the climate – and are therefore thwarting Germany's implementation of the Paris Agreement. It is costing taxpayers three billion euros for the state relief of the electricity and energy tax burden on the manufacturing, agriculture and forestry sectors. This gives companies and consumers too little incentive to save energy. "For years we have ignored huge blind spots as we claim to phase out subsidies. It is paradoxical that Germany has committed to increased climate protection at international level but, at the same time, rewards climate-damaging behaviour with taxpayer money. The Federal Government has shown resolve by finally placing the phase-out of environmentally harmful subsidies on the agenda of the Climate Action Plan 2050. Words must now be followed by action", said UBA's President Maria Krautzberger.

The majority of environmentally harmful subsidies, worth 28.6 billion euros, are spent in the transport sector, followed by the energy supply and consumption sectors at 20.3 billion euros. Subsidization in the transport and energy sectors is especially problematic for the climate: the transport sector accounts for nearly 18 percent of all greenhouse gas emissions; energy produces more than one-third. 

The energy sector in particular still has great potential to phase out subsidies, for example the electricity and energy tax breaks granted to the manufacturing sector and to agriculture and forestry. The businesses which benefit pay only 75 percent of the regular tax on energy and electricity despite a reform of legislation in 2011. Furthermore, under certain conditions manufacturing companies can bring special rules which apply to energy-intensive users to bear. This means that each additional kilowatt hour they consume costs not roughly 2 cents, but only 0.15 cents in electricity tax. These tax breaks amount to state revenue losses of three billion euros per year – and gives none of the incentives which are necessary to save energy.

"The legislator must reduce the tax advantages and limit them to energy-intensive companies which face fierce international competition. Lignite mining, for example, also enjoys tax advantages although the sector does not stand up to international competition", remarked Ms Krautzberger. Another problem is the exemption from the energy tax for certain energy-intensive thermal processes and procedures in the metals and mineral industry. "This is revenue which is lacking for use in other areas, including climate action. The state should instead use the funds to support the development of innovative mitigation technologies." 

Agricultural production also plays a major role in climate change. In Germany, the sector is the main emitter of methane and nitrous oxide emissions. This is why UBA has now declared in its report that the tax privileges which apply to products of animal origin are an environmentally harmful subsidy, worth 5.2 billion euros. Animal products such as meat and dairy are taxed at only 7% VAT although they are much more damaging to the climate than cereals, fruit or vegetables. The production of one kilo of beef generates between 7 and 28 kilos of greenhouse gas emissions, whereas fruit or vegetables emit less than one kilo. "Food products of animal original ought to be taxed at the regular 19-percent rate in future. In return, the state could use the resulting billions in tax revenue income to further reduce the 7% preferential VAT rate. This would lower the prices for fruit and vegetables or public transport. Both measures are be good for the climate and of immediate benefit to the public", said Ms Krautzberger.

Umweltbundesamt Headquarters

Wörlitzer Platz 1
06844 Dessau-Roßlau
Germany