Carbon pricing in Germany’s road transport and housing sector: Options for reimbursing carbon revenues
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Date
2021
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Abstract
In 2021, Germany launched a national emissions trading system (ETS) in its
road transport and housing sectors that increases the cost burden of consumers of fossil
fuels, the major source of carbon dioxide (CO2) emissions. A promising approach to secure
public acceptance for such a carbon pricing would be to entirely reallocate the resulting
“carbon” revenues to consumers. This article discusses three alternatives that
were discussed in the political arena prior to the introduction of the national carbon pricing:
a) a per-capita reallocation to private households, b) the reduction of electricity prices
by, e.g., decreasing the electricity tax, as well as c) targeted financial aid for vulnerable
consumers, such as increasing housing benefits. To estimate both the revenues originating
from carbon pricing and the resulting emission savings, we employ a partial equilibrium
approach that is based on price elasticity estimates on individual fossil fuel consumption
from the empirical literature. Most effective with respect to alleviating the burden
of poor households would be increasing housing benefits. While this measure would
not require large monetary resources, we argue that the remaining revenues should be
preferably employed to reduce Germany’s electricity tax, which becomes more and more
obsolete given the steadily increasing amount of electricity generated by renewable energy
technologies.
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Keywords
electricity tax, distributional effects, housing benefits