Germany’s renewables surcharge has been a topic of contentious debate for years. What prompted you to dedicate a study to it now?
Two reasons. First, the Fuel Emissions Trading Act, which introduces emissions trading to Germany’s heating and transport sectors starting in 2021, will generate revenue that’s supposed to be returned to citizens in some form or another. Its enactment was accompanied by a symbolic reduction of the renewables surcharge. Second, reducing the renewables surcharge further would provide welcome economic stimulus to an economy hard hit by the corona pandemic. Besides, we’re not the first to propose this. Agora, an energy policy think tank in Berlin, has recommended lowering the surcharge from 6.5 cents to 5. Germany’s Green Party is also in favor of trimming the renewables surcharge, as are the energy ministers of a number of German states. Even Markus Söder, Minister President of Bavaria, has suggested abolishing it.
Thorsten Müller, founder and Research Director of the Foundation for Environmental Energy Law
Wouldn’t eliminating the surcharge entirely be a fairly radical step?
Well, it would certainly radically cut red tape for transmission system operators (TSOs), distribution system operators (DSOs), energy-intensive industries, people and companies that generate their own electricity, and BAFA, Germany’s Federal Office of Economics and Export Control, which is responsible for administering the surcharge. In other words, eliminating the surcharge would reduce paperwork as well as costs.
Would the reduction in bureaucracy really be that significant?
Probably more than many people realize. For example, Germany’s four TSOs first calculate the total amount of renewables subsidies paid out and divide it equally among themselves. They then pass these costs through to the DSOs, which need to account for them. In addition, Germany has millions of solar panel owners who have paperwork related to the surcharge. There are also more than 2,000 companies that qualify for a special offset scheme. They have to submit an annual application, which requires the support of auditors and in some cases lawyers. Then BAFA has to process these applications. Although these administrative expenses don’t equal the billions in renewables subsidies, they are significant.
Your study also asserts that the renewables surcharge impedes innovation. How?
Tomorrow’s electricity is supposed to generate heat, produce hydrogen, and power electric cars. But today’s electricity is expensive compared with gasoline, oil, and natural gas because it’s subject to grid fees, the renewables surcharge, and the electricity tax. Expensive electricity impedes the transition to a low-carbon economy. For example, it slows the conversion from grey hydrogen to green. Cheaper electricity would give green hydrogen and many other innovative applications a boost.
But wouldn't cheaper electricity encourage overconsumption?
That’s a valid objection, since expensive electricity certainly provides people and companies with an incentive to use it more efficiently. But is this an argument against lowering the renewables surcharge or for addressing this issue with other energy legislation? Our study recommends offsetting the revenue lost from the elimination of the renewables surcharge by temporarily increasing the electricity tax. But this measure would be transitional, since Germany won’t achieve its climate policy goals by lowering the renewables surcharge and doing nothing else. On the other hand, combining the reduction of the surcharge with a decarbonization-oriented reform of the electricity tax would create an additional incentive for climate protection that I think would be very desirable.
Who would benefit from abolishing the renewables surcharge? And who would suffer?
Almost everyone would benefit because almost everyone would save money. There would also be the reduction in bureaucracy that I already mentioned. Households with lower incomes would tend to benefit more than those with higher incomes, so our proposal has a social aspect as well. By contrast, companies that currently benefit from the offset scheme and have therefore until now paid a smaller renewables surcharge would only be slightly better off. And they would lose their competitive advantage over companies that don’t qualify for the scheme. Our proposal also wouldn’t benefit companies that have taken steps to reduce their exposure to the renewables surcharge, like those that produce their own power and don’t draw any from the grid. But their advantage would’ve diminished going forward anyway. Abolishing the surcharge merely accelerates this trend. Our aim was for all consumers in Germany to benefit equally and for no company to be worse off after eliminating the surcharge and temporarily increasing the electricity tax than they would be if both were retained. Our purpose wasn’t to redistribute but rather to simplify.
What are the chances that the surcharge will actually be eliminated?
I think that it eventually will be. In any case, it will certainly decline going forward. First, the rising prices of EU emissions allowances and the phasing out of coal-fired and nuclear power plants will reduce Germany’s installed generating capacity. This decrease in supply will tend to push German electricity prices higher, which would serve to reduce the renewables surcharge. Second, Germany’s earliest renewables facilities are gradually becoming too old to qualify for the subsidy, which will make green electricity increasingly cheaper. Revenues from the Fuel Emission Trading Act, which are to be used to reduce the renewables surcharge, constitute another factor. I suspect that as the surcharge gets smaller, policymakers will face increasing pressure to simply eliminate it. So the end of the renewables surcharge is probably only a matter of time.