ifo Institute: Higher Initial Price for CO₂ in Germany Is Correct Signal
The ifo Institute takes a cautiously positive view of the compromise reached on Germany’s climate package. “Raising the initial price for CO₂ is an important step in the right direction,” says Karen Pittel, Director of the ifo Center for Energy, Climate, and Resources. “The higher CO₂ price shows a willingness to make it the guiding signal for climate policy in the long term.”
Pittel goes on to say that the speed with which the agreement was reached also gives hope that further increases would be possible in the future, should it become clear that the German and European climate targets cannot be achieved at the price level that has now been agreed to.
Pittel also sees the planned stronger reduction in the EEG surcharge as positive. “This will relieve the burden on low-income households in particular and is administratively simpler than introducing new instruments such as a climate bonus.”
Pittel takes a critical view of the narrow price corridor between EUR 55 and EUR 65 for 2026: “This price corridor implies that the emissions trading system to be adopted will not truly set a hard upper limit on emissions.” Were this price corridor to become permanent, it would amount to a CO₂ tax. According to the bill, if the EU emission reduction targets have not been met when the upper price limit is reached, the difference must be covered by purchases of emission allowances from other EU member states. This represents a significant financial risk, since it is not clear at what prices this will be possible.
“Politicians fear that deregulation of the CO₂ price will lead to a major increase in CO₂ prices if the climate targets are to be achieved in 2030,” Pittel says. Such a price increase could be avoided by quickly integrating German emissions trading into the European emissions trading system. “Including German emissions from buildings and transport in European emissions trading would be the efficient alternative from an economic point of view. The German government should systematically pursue this goal,” she concludes.
