This report Germany’s effort to phase out and rationalise its fossil-fuel subsidies demonstrates that throughout the last two decades, Germany’s energy policy has shifted gears in two major ways. First, in the early 1990s, the decision to scale down and eventually close its hard-coal mining industry resulted in a significant structural change to the country’s energy landscape. Second, the Energiewende, Germany’s energy transition to a lowcarbon economy, has shaped much of the developments in the energy sector since year 2000, propelling the deployment of renewable-energy sources for electricity production and heat as well as energy efficiency.
From the introduction of energy and electricity tax reforms to feed-in tariffs for renewable energy, Germany’s energy policy has made significant strides in addressing its climate change objectives. Bearing in mind the above developments, 22 fossil-fuel measures benefitting the upstream activities (extraction of coal) and downstream activities (agriculture, manufacturing, and transport of fossil fuels) were identified by Germany in its self-assessment.
In its self-report, only its measures to support hard-coal mining – already close to being completely phased out – were classified as being inefficient subsidies. The German Federal Government maintains the rest of the support measures (mainly tax exemptions or reductions) on the grounds that they ensure the competitiveness of its industry and prevent emissions from relocating to less environmentally stringent countries. Germany does acknowledge, however, that many of these measures favour the consumption of fossil fuels.
The report encourages the German Administration to take an additional step beyond taking stock of their support measures and assess the sensitivity of their industry competitiveness and carbon leakage to the reform. In doing so, the German Administration could consider alternative measures that are less distortive for achieving their objectives of maintaining industry competitiveness and preventing emissions relocation. The report suggests that literature on the contribution of environmental regulation to industry performance thus far does not yield consensus, often showing that supply and demand conditions dominate; the German case thus needs to be studied more closely.