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German cabinet approves climate law extending CO2 pricing to transport

Highlights

National CO2 price to start at Eur10/mt

Rising to Eur35/mt in 2025, assuming Eur60/mt in 2030

Annual sector-specific CO2 targets to be monitored

London — The German cabinet Wednesday approved a wide-ranging climate protection law aimed at cutting national CO2 emissions by 55% in 2030 by extending CO2 pricing to the transport and heating sectors.

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The legislation now includes annual targets for CO2 emissions specific for each sector (see table) and follows the framework decision by the climate cabinet presented by Chancellor Angela Merkel at the UN climate action summit last month.

The various measures across many departments are estimated to cost over Eur50 billion ($55 billion) in the federal budget to 2023, it said.

A monitoring commission is set to assess the annual targets every year, triggering additional measures if they are not met.

German Annual CO2 Emissions Targets (million mt CO2)

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Energy 280 257 175
Industry 186 182 177 172 168 163 158 154 149 145 140
Housing 118 113 108 103 99 94 89 84 80 75 70
Transport 150 145 139 134 128 123 117 112 106 101 95
Agriculture 70 68 67 66 65 64 63 61 60 59 58
Other 9 9 8 8 7 7 7 6 6 5 5

Source: German climate protection law (draft passed by Cabinet Oct 8)

Key to achieving the targets are new measures in the transport and heating sectors that have been lagging behind climate targets, including a new national CO2 price from 2021.

The fixed price is set to rise to Eur35/mt in 2025 from Eur10/mt in 2021.

This is set to increase fuel prices initially by only 3 cent/liter in 2021, rising to 10 cent/liter by 2025.

To compensate households, the government plans to boost tax allowances for commuting as well as reducing the green electricity levy paid by most consumers to finance renewables.

From 2026, the fixed price is set to move to a trading system with the government assuming a linear path to Eur60/mt in 2030.

For the power sector, the implementation of the proposed coal phase-out as well as details on achieving the target of65% renewables in the power mix by 2030 will be key.

The sector is set to achieve its 2020 target of a 40% cut over 1990 levels, while the wider economy is only forecast to achieve a 32% cut as the transport sector has barely cut emissions.

-- Andreas Franke, andreas.franke@spglobal.com

-- Edited by Jonathan Dart, jonathan.dart@spglobal.com