Some think it is too low, others see it as a threat to the economy. Since 1st January, there has been a new CO2 tax on fossil fuels in Germany. How has the market reacted?

From the beginning of the year, the new CO2 pricing for the heat and transport sectors has applied. This will launch a domestic emissions trading system for those sectors with CO2 emissions that have not yet been covered by the EU’s Emissions Trading System. For the introductory phase between 2021 and 2025, there will initially be fixed prices for the certificates.

In real terms, this means a surcharge on fossil fuels depending on their CO2 emissions during combustion: From 1st January 2021 onwards, the system started with a price of 25 Euros per tonne of CO2. This results in a levy of 7.9 cents per litre for oil and diesel, 7 cents per litre for petrol and 6 cents per 10 kilowatt hours for natural gas, to put it roughly in the right perspective in terms of energy.

Liquid gas/liquefied petroleum gas is also affected with a surcharge of around 3.9 cents per litre, as calculated by the German LPG Association. However, account must also be taken of the energy comparison in this case. Even district heating is partly affected, though this depends on how it is produced.

The impact on the market varies
Since the majority of heating oil customers thoroughly filled their tanks last year at very favourable prices and are therefore able to get through the current heating season without any need for replenishment, they do not initially notice any CO2 surcharge. For the petroleum trade, this means a real slump in sales – at least in the first quarter of 2021. For the oil heating operators, their system once again proves to be an advantage.

Furthermore, heating oil prices in January stubbornly remained at the level of mid-December 2020 anyway. Hardly any demand is apparently putting pressure on prices in competition, although simultaneously with the CO2 surcharge, the increased crude oil quotations and the rise in value-added tax again ought to have an impact. At the end of January, heating oil was still about 16 percent cheaper on average in Germany than at the beginning of the previous year. This is not the case for other energy sources. Whether natural gas, liquid gas, district heating or electricity is concerned, there have been price increases everywhere and the costs in all cases are higher than at the beginning of 2020.

On the other hand, prices at the pump for diesel and petrol rose by around 9 per cent, which is perfectly understandable given the guidelines, but still remained around 5 per cent cheaper than in January 2020. The development of gas as a fuel was different. Liquefied petroleum gas became significantly more expensive – not only compared to December, but also versus January 2020.
Although the price at the service station for natural gas rose in January, it still remained below that of the same month last year. According to the industry initiative Zukunft Gas, liquefied natural gas (LNG) is enjoying increasing popularity as a fuel, particularly among logistics companies. As a result, more than twice as much of the alternative fuel was sold last year as in 2019.

Summary: the CO2 surcharge has had differing effects on retail prices in the heating market and at the service station. Other market factors may very well have a greater influence on the price structure and hence also on logistics costs and conceal the CO2 component.

Credit: ©