As a leading industrialised economy, Germany has a special responsibility to take effective climate action. The stricter targets set out in the amended Climate Action Act aim to make Germany climate-neutral by 2045. Germany wants to reduce its greenhouse gas emissions by 65% (compared with 1990 levels) as early as 2030. The government is pressing forward in the fight against climate change with two major programmes: the Climate Action Programme 2030 and an immediate action programme for 2022.

One of the Climate Action Programme’s key elements – the introduction of carbon pricing in the heating and transport sectors – was launched this year. The carbon pricing scheme is guided by a simple principle: whoever is responsible for carbon emissions must pay for them too. Companies that want to sell fossil fuels must acquire emissions allowances for every tonne of carbon that is emitted as a result. These companies then pass the extra costs on to consumers in the form of higher prices for heating oil, natural gas, petrol and diesel. In turn, the government is reinvesting all of the revenue from the carbon pricing scheme in climate action measures, or paying it back to taxpayers.

The proceeds first flow into the Energy and Climate Fund. The Fund is then used by the government to finance measures that help people make the transition to climate-friendly alternatives. The aim is to make climate-friendly products and behaviours more financially attractive than products and behaviours that harm the climate.

What kinds of relief are being provided?

Animation of a CO2-cloud

The German government is using revenue from the carbon pricing scheme to offset rising electricity costs. It is doing this by reducing the “EEG surcharge”, which is a levy charged on electricity consumers to promote renewable energy sources. If the revenue from carbon pricing goes up, the government subsidy to reduce the surcharge will go up as well, which in turn reduces the overall price of electricity. This helps low-income earners in particular.

Affordable electricity prices will encourage people to buy electricity-driven products such as electric cars and heat pumps. In addition, it is crucial to carry out a major expansion and upgrade of power grids. This will be done within Germany itself but also jointly with our European neighbours. Flexibility in the consumption and storage of electricity will bring more rewards in the future as well.

Animation for commuter package

The Climate Action Programme 2030 provides support for people who have to travel long distances to get to work and who will be more heavily impacted by the carbon pricing scheme. Some people do not have the option of riding a bicycle or taking public transport to get to their workplaces. In order to avoid putting long-distance commuters at a disadvantage, the German government increased the commuter tax allowance in 2021 from 30 to 35 cents for each kilometre above 20 kilometres. From 2024 onwards, the commuter tax allowance will be increased by an additional 3 cents for a period of three years (to 38 cents for each kilometre above 20 kilometres). This will provide support to people who depend on their cars to get to work and will give them enough time to make the switch to a more climate-friendly type of car.

The government also introduced a “mobility premium” to provide relief to low-income earners. This benefits people who pay no income tax due to their low level of income and who therefore do not qualify for the commuter tax allowance. As an alternative to the commuter tax allowance, eligible low-income earners can claim the mobility premium for long-distance commutes exceeding 20 kilometres.

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The Climate Action Programme 2030 expands existing funding programmes in order to enable as many homeowners as possible to invest in housing retrofits as needed. The German government is making climate-friendly products and behaviours more attractive while reducing the attractiveness of products and behaviours that harm the climate. For example, funding is being provided to promote the switch to heat pumps, but not for upgrades of heating systems that use oil or gas. From 2026 onwards, it will no longer be permitted to install oil heating systems in new buildings.

Furthermore, tax relief is being provided to encourage climate-friendly investments in owner-occupied housing. This includes investments in new heating systems, new windows, and insulation for roofs and exterior walls. No one will be required to replace their current heating system or insulate their home overnight. Instead, Germany’s long-term objective is to make the building sector – like all sectors – climate-neutral (i.e. with zero net greenhouse gas emissions) by 2045.

Animated train

VAT on long-distance train tickets has been reduced from 19% to 7%. This has made rail travel cheaper and more attractive. In addition, major investments are being made in the rail network, with new trains and routes that will further enhance the appeal of rail travel. The long-term aim is to provide such good, fast train connections that domestic flights become largely unnecessary.