Germany scraps natgas levy, agrees €200bn package ‘to brake’ rising prices

Stefan Baumgarten

29-Sep-2022

LONDON (ICIS)–Germany’s coalition government on Thursday agreed not to go through with a controversial levy or surcharge on natural gas consumption, which it was estimated would have cost the country’s chemical industry alone about €4bn/year.

Instead, the government agreed a €200bn package “to brake” the soaring natural gas prices, to be financed through an “economy and stabilisation fund” (Wirtschafts- und Stabilisierungsfonds, WSF).

“Prices must come down,” Chancellor Olaf Scholz said in remarks at a webcast press briefing.

To ensure that prices would come down, the government was putting in place a “broad protective umbrella”, and the €200bn would make it possible to finance the necessary measures, he said.

While it was clear that there would be no more gas deliveries from Russia in the foreseeable future, Germany was now well prepared, he added.

He pointed to agreements to get more gas from other countries, the new floating storage and regasification units (FSRU) to import liquefied natural gas (LNG), the restart of coal power plants, and the fact that the country’s natural gas storage was filled to more than 90% of capacity ahead of the winter.

Commentators said with the gas price brake, industry and private households would not pay market prices, but lower prices.

However, the funding, through the WSF, meant that the government would run up more debt, they said.

The government has yet to determine how exactly the gas price brake and related measures will be implemented, officials said.

CHEMICAL INDUSTRY
The director general of German chemical producers’ trade group VCI, Wolfgang Grosse Entrup, welcomed the new measures and the decision not to implement the gas levy.

“Now we need speed in working out the details, because more and more companies have their backs to the wall,” he said.

“The opportunity for a breathing space provided by the price brake must now be used in order to jointly create the structures that will get us through the difficult next two winters,” Grosse Entrup said.

Earlier, VCI had called for a cap on natural gas and electricity prices.

“When chemical companies have to cut back or even stop their production because of astronomical energy costs, then this is a disaster for Germany as a location for industrial production,” Grosse Entrup said.

He noted a recent survey that showed that in the heavily industrialised North Rhine-Westphalia state, 34% of chemical companies had already reduced their production because of the high energy costs.

In related news on Thursday, Germany’s top economic research institutes said in a joint forecast that the country’s economy was heading into a recession.

GDP had already declined slightly in Q3 and would continue declining in Q4 and Q1 2023, they said.

For the full year of 2022, GDP would still rise 1.4%, but it would fall 0.4% in 2023, they said.

In their previous joint forecast, from April, the institutes had forecast 2.7% growth in 2022, and 3.1% in 2023.

Russia’s attack on Ukraine and the resulting crisis on the energy markets led to a noticeable slump in Germany’s economy, said Torsten Schmidt from RWI Leibniz Institute for Economic Research, which explains the sharp downward revision in the forecasts.

Also, European chemical trade group Cefic and Fertilizers Europe said on Thursday that high natural gas prices in the EU were “unbearable” for energy-intensive industries.

Front page picture: Chancellor Olaf Scholz (centre, on screen), minister for economic affairs Robert Habeck (L), and finance minister Christian Lindner, speaking to reporters on Thursday after the gas price break was announced
Picture source: Filip Singer/EPA-EFE/Shutterstock

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