Why Germany could scrap gas levy plans and bring in a price cap

What’s going on?

Gas prices in Germany are at record-high levels and, with winter around the corner, heating costs threaten to lower the standard of living even further and put many businesses that use a lot of gas, such as bakers, out of business.

READ ALSO: German bakeries fight for survival as costs spiral

In view of this, the planned gas levy – a surcharge of 2.4 cents per kilowatt hour for all gas users due to come into force in October – is being called into question.

Will the gas levy be dropped?

The gas surcharge was intended to support gas importers who face high costs due to a lack of cheap Russian supplies, by passing on some of the extra cost to consumers, meaning an extra burden of several hundred euros per household.

But now, politicians within the traffic light coalition government - made up of the Social Democrats (SPD), Greens and Free Democrats (FDP) - are criticising the levy and voicing support instead for a gas price cap.

A few days ago, SPD leader Lars Klingbeil expressed doubts about the surcharge for millions of customers.

Speaking on ZDF, Klingbeil said that he had "no doubt that we will get a final decision on the gas levy next week" and that Federal Economics Minister Robert Habeck, as the responsible head of the department, must now make a proposal "on how to proceed with the gas levy".

READ ALSO: Civil servants ‘getting burnout’ over energy crisis, says German minister

Co-leader of the SPD Saskia Esken said: "I am convinced that we'll see the end of the gas surcharge by the end of this week."

Finance Minister and leader of the FDP, Christian Lindner, who is pushing for a gas price cap, criticised the levy.

"We have a gas levy that increases the price. But we need a gas price brake that lowers the price," he said. He urged for a gas price brake that would "help all people in the economy quickly".

Last Wednesday, Economics Minister Robert Habeck said that the gas levy would still come into force - despite the nationalisation of gas importer Uniper. Immediately afterwards, there was opposition from the SPD parliamentary group in the Bundestag, among others.

READ ALSO: EXPLAINED: How much will Germany’s gas levy cost you?

Chancellor Olaf Scholz (SPD), who is currently in Doha, has been evasive about the future of the gas levy. He did not want to comment on the dispute between Habeck and Lindner, but said that the government had succeeded in securing gas supplies.

The Green Party's federal chairman Omid Nouripour said that he expects the controversial gas levy will come into force for the time being, but that it will not last.

He told RTL: "I have to admit that I assume that (the levy) will come into force on October 1st," but said that his Green Party colleague Robert Habeck  "is doing everything he can to get the levy dropped as quickly as possible".

How could a gas price cap be funded?

Finance Minister Christian Lindner is currently advocating for a gas price brake - a kind of state-financed cap on gas prices. On the ARD programme Anne Will he said that he had an idea for financing a gas price brake - but that he did not want to make it public until he had discussed it with his coalition partners from the SPD and the Greens.

READ ALSO: Will Germany set a gas price cap?

For the first time, the Ministry of Economics has now also given figures for what a gas price cap could cost. Reducing the end consumer price for electricity by one cent per kilowatt hour would cost the state €1.3 billion, and reducing the price of gas by one cent would cost around €2.5 billion.

However, one problem that would need to be addressed is the national debt brake. The debt brake is enshrined in the German constitution and stipulates that the federal and state governments must balance their budgets without borrowing. Because of the Covid pandemic, the federal debt brake was suspended for three years and some politicians are calling to suspend it again. 

The pro-business FDP, however, are against suspending the debt break. 

"A gas price brake is no reason for me to make an exception to the debt rule for the federal budget again," said Lindner, who is leader of the FDP. 

How much could people save with a gas price cap?

Based on the figures from the Economics Ministry, an average family with an annual gas consumption of 20,000 kilowatt hours in a single-family home would save about €200 a year for every cent per KWh waived with government money, and a single household with an annual consumption of 5,000 kilowatt hours would save about €50 a year.