Merkel Weighs German Carbon Prices to Speed Pollution Cuts

(Bloomberg) --

Germany is considering whether to impose a tax on carbon pollution or push to expand the existing European market in an effort to speed up the pace of reducing greenhouse gases.

Chancellor Angela Merkel is calling for putting a price on the emissions from industries such as transport and buildings that are outside the European Union's carbon trading program. It isn't a matter of whether, but how Germany will make the move, she indicated in a little-reported April podcast.

Lawmakers in Berlin this week debated the implications of Merkel's announcement, with some cautioning about the strain it would put on the economy as growth wobbles and power generators work to close coal plants. Businesses and households already pay about 25 billion euros ($28 billion) a year on green-energy subsidies, making Germany's power bills the highest in the EU after Denmark.

The search is on for a policy to curb carbon emissions that's “compatible with the economy,” Merkel said. Her coalition could expand the EU carbon market to all industries or introduce a new tax. The chancellor wants a decision by the end of the year.

German businesses are skeptical that Merkel can pull off the plan without adding to the costs on industry, according to Carsten Rolle, the head of energy at BDI, a group representing the nation's 100 biggest companies.

Yet Germany's failure to meet its own targets on emissions show Merkel has little choice but to upend decades of policy geared mainly toward expanding green power.

“The implications are daunting,” said Andreas Loeschel, a University of Muenster economist. He's also head of the government's independent Energy Monitoring Commission and is publishing a report this month that addresses the coming upheaval.

“It's doable,” he said. “The question is whether a tool or tools can be shaped that keep costs for the economy -- firms and consumers -- neutral.”

The price may be high. Environment Minister Svenja Schulze suggested an introductory charge could start at about 20 euros per ton, rising over time. Carbon allowances in the EU's Emissions Trading System, which puts a price on permits that factories and utilities need to cover their carbon dioxide emissions, have doubled in the past year and now cost more than 24 euros a ton.

Germany's 3.6 million companies can't say they haven't been warned. By backing the Paris Climate Accord in 2016, Europe's biggest economy and carbon emitter signed up to cut pollution by 55 percent by 2030 compared with 1990. It'll notch up a reduction of about 32 percent by next year, according to the government.

Industrial processes and manufacturing accounted for about 23 percent of all Germany's emissions last year.

On Thursday, the U.K. government proposed creating a new carbon market and linking it to the EU's system once the nation exits the trading bloc. The British market could be expanded to cover other industries in the future, it said as it sought views from companies and airlines.

A quick glance at Germany's DAX blue-chip index show mixed progress in cutting carbon. Car parts maker Continental AG has been shifting to greener production since 2007, turning that experience into revenue. Some 40 percent of sales last year were linked to energy-efficient and emission reducing technology.

Dialysis machine-maker Fresenius SE, which emitted more than 1 million tons of carbon dioxide last year, has no plans to set goals. While it's striving to reduce emissions, improving its technology will always be the main priority, a Fresenius spokesman said.

--With assistance from Mathew Carr.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net;Vanessa Dezem in Frankfurt at vdezem@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson, Andrew Reierson

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