Carbon Critical

June 15, 2021

Climate Policy Comes Home

All the German parties want credit for raising climate targets. But none wants to be blamed for raising carbon prices to achieve them.

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A graph showing the proposed increase of the carbon price on gasoline in Germany, as agreed by the German government in 2019
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In May Germany’s Federal Constitutional Court ruled that Germany’s climate targets were insufficient. Leading figures from the rebuked German government praised the ruling as “epochal for climate protection and the rights of young people,” and immediately began to work on a law to raise the targets and pass new measures to achieve them. It looked like a watershed moment.

Or perhaps not. A month later the Green party chancellor candidate, Annalena Baerbock, gave an interview to Bild, the country’s largest mass-circulation newspaper. The carbon price on gasoline, she dared to suggest, “has to gradually increase to 16 cents” per liter, perhaps by next year as her co-party leader Robert Habeck had suggested. This set off—to use of one the German language’s favorite loanwords—a shitstorm.

Olaf Scholz, the German finance minister and chancellor candidate for the Social Democrats, told Bild, “Anyone who simply keeps cranking up gasoline prices demonstrates how little they care about the hardships that citizens face.” Transport Minister Andreas Scheuer, a member of the Christian Social Union, the Bavarian sister party to the Christian Democratic Union, called Baerbock’s proposal “concerning.” “Prices,” he said, “can’t just keep going up” because mobility “has a social aspect.” Amira Mohamed Ali, the left-wing Left Party’s parliamentary group leader in the Bundestag, accused the Greens of making climate policy “on the backs of the little people.” Stephan Thomae of the pro-business Free Democrats called for a “brake on gasoline prices” to help “those who don’t sleep on beds of roses.”

Hypocritical Critics

The fierceness of the criticism was surprising. After all, the FDP election manifesto advocates market-based climate policies, not price controls. And the CDU and SPD themselves agreed to put a carbon price on transport fuels as part of their 2019 “climate package.” This pricing mechanism already increased the cost of a liter of gasoline by 7 cents at the start of 2021; the carbon price per liter will rise to 15 cents by 2025 and keep going up thereafter. Baerbock’s proposal was simply to raise prices slightly faster than the government agreed to do in 2019, which seems quite reasonable given that both Germany and the European Union have raised their climate targets since then.

Carbon pricing will cost poorer citizens a larger share of their incomes than it does richer citizens. Therefore, as Scholz and Scheuer surely know, the Greens propose to return some of the money directly to citizens in the form of Energiegeld,” yearly payments to all Germans, starting at €75. The SPD and FDP election manifestos also advocate some sort of green dividend, and various CDU and CSU politicians have previously called for higher carbon prices and payments to citizens. In fact, the German government is already using some of the new carbon pricing revenues to both reduce electricity costs, by lowering the “renewables levy,” and increase tax-write-offs for commuters.

The point is not to bash a particular party. Political attacks, even populist ones, are part of campaigning—and the Greens have their own streak of hypocrisy, which manifests itself in ideological opposition to certain emissions-reducing technologies such as nuclear power or carbon capture. Ralph Brinkhaus of the CDU deserves credit for coming clean on June 11. “In the second half of the decade”, said the CDU/CSU’s parliamentary group leader, “[gasoline] is going to get really expensive.”

Still, the German gasoline price debate demonstrates that climate policymakers are in for a difficult period, even though public support for climate mitigation in the abstract has risen dramatically. That’s because, in the EU, climate policy is coming home.

Changes Citizens Cannot Ignore

For the last three decades the EU has made the most progress on cutting emissions in the electricity and industrial sectors. This has entailed major changes for certain small groups of people: coal miners, those who can see wind farms from their windows, owners of chemical factories or steel mills. But the changes have been largely invisible for most Europeans. The electricity that comes out of a wall socket works the same whether it was generated with coal or solar. And for those who do notice moderate increases in their electricity bills, it is not always clear to what extent climate-related taxes are responsible.

This will change in the 2020s. The EU and its member states are aiming for big emissions cuts in the transport and building sectors. This will mean changes that citizens cannot fail to see. It means construction on every street—to make buildings more energy-efficient, replace gas boilers with heat pumps, and install charging points for electric cars. It means banning fossil-fueled vehicles from city centers, whether old diesel cars from German cities or most vehicles from the center of Paris. And yes, it means higher carbon prices and thus higher gasoline prices.

Higher gasoline prices aren’t popular. German politicians have seen the political backlash against fuel taxes in neighboring countries, whether the Gilet Jaunes protests in France in 2018–19 or Swiss voters’ rejection of the country’s climate law, which included surcharges on car fuels and flight tickets, in a referendum on Sunday. In a Der Spiegel poll from early June, 74 percent of respondents disapproved of the “Greens’ proposal” to raise gasoline prices by 16 cents a liter.

Perhaps the numbers would change if it were explained that the other parties had also agreed to increase prices, or that the revenues would be returned to citizens. Yet voters often make decisions without seeing the whole picture. Barack Obama recently told The New York Times that one of his biggest regrets was having “spread out [his Making Work Pay] tax cut in people’s weekly paychecks, in drip, drip, drip fashion.” Many voters mistakenly thought Obama had raised their taxes. Baerbock’s opponents are painting her as the woman who will ban all the things Germans love—see for instance the lobby group INSM’s major new campaign “Annalena and the 10 Prohibitions,” where Baerbock is a depicted as sort of an evil Moses figure, holding up stone tablets that command Germans to stop driving gasoline-fueled cars. If the goal is to deflect such attacks and maintain broad support for the energy transition, there is a good case for redistributing carbon pricing revenues directly and visibly, via checks or bank transfers, rather than lowering complex electricity surcharges.

Quiet Climate Policy?

Is there an alternative to making fossil-fueled vehicles more expensive to drive? A more “positive” climate policy could make clean alternatives relatively cheaper. A few German cities are running pilot projects on free public transport. Buses and trains are already free in some places around Europe, such a Luxembourg and Tallin. The government could try to make electric cars even cheaper, although Germans can already get rebates of up to €9,000 on those vehicles. The problem with purely positive policy is that it doesn’t bring in tax revenues in the short term, so Germany would either have to borrow more or raise taxes. Scholz and Scheuer might object to that too.

Climate policy could be quieter. The Breakthrough Institute in the United States argues for “quiet climate policy,” essentially infrastructure, research spending, and tax credits that won’t deepen political divides in the same way that carbon pricing or speed limits (another Baerbock policy) might. There is something to be said for this approach. However, the EU is further along in the energy transition than the US, and eventually something has to be done not only to nurture clean technologies but also to phase out dirty ones as soon as possible. According to its highest court, Germany has already procrastinated for too long.

Unlike their US counterparts, European politicians can let supranational policy do some of the dirty work. European Commission President Ursula von der Leyen recently said that the EU plans to introduce a separate emissions trading system for buildings and transport. This will make gasoline more expensive for Europeans, including Germans, though she says it will be “coupled with a clear social compensation structure.”

In the short term, the Greens’ opponents might be able to score some points by claiming that they haven’t agreed that gasoline prices should increase or by blaming “the EU” for higher prices. Indeed, the CDU’s poll numbers have risen in recent weeks as the Greens’ have fallen. But in the long term, it will be better for both “the little people” and those on “beds of roses” if policymakers are honest about who wants to raise carbon prices and why—and acknowledge that the poor need not pay the price for protecting the planet.

Noah J. Gordon is INTERNATIONALE POLITIK QUARTERLY’s climate columnist.

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