Will the Corona crisis now be followed by a fuel price crisis? On the one hand, fossil fuels are artificially rendered more expensive by taxes and levies; on the other hand, soaring prices at the service station are proving to be a risk for the economy and the upswing.

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For climate protection, the prices for fossil fuels ought to increase, to reduce the amount of driving and heating and make renewable energies competitive. This should contribute to fulfilling the ambitious emission targets. Various different studies state over and over again: CO2 emissions can only be reduced at the rate envisaged by climate legislation if energy becomes more expensive. In some cases, there is talk of even considerably higher CO2 taxes than are currently estimated.

On its website, the Federal Environment Agency (⁠UBA⁠) recommends “applying a cost rate of 201 Euros per tonne of carbon dioxide for greenhouse gases emitted in 2021“. The CO2 tax is currently 25 Euros per tonne. Hence, there is still some room for further development.

It is therefore no surprise that Dr. Patrick Graichen from Agora Energiewende expressed the opinion at the Energy Day of the Federal Office for Economic Affairs and Export Control at the beginning of October that oil and gas will no longer be cheap again, otherwise climate neutrality by 2045 will not be achieved. Those hoping that market prices for oil and gas will fall again should expect CO2 taxes to rise more quickly.

The State makes handsome profits at the same time
Another aspect should not go unmentioned here: the higher the prices at the pump, the more money in the State’s coffers. In addition to energy tax (65.5 cents per litre of petrol and 47 cents per litre of diesel), the new CO2 tax (around 6 cents per litre of petrol and 6.7 cents per litre of diesel) will also make a significant difference when refuelling from January onwards.

These two price components alone already account for a proportion of VAT of 13.6 cents/litre for petrol and 10.2 cents/litre for diesel.

If oil and hence fuel prices rise at the same time, the VAT revenue for the Minister of Finance will also increase. Here is an example: with the low petrol prices in September 2020, the proportion of VAT was 17.65 cents/litre of premium petrol, according to calculations by the Petroleum Industry Association. One year later it was 25.99 cents/litre. This corresponds to an increase of around 47 per cent.

The interest in price-reducing measures on the Federal Finance Minister’s part is therefore likely to be quite limited.

Dire consequences

What we are currently experiencing at the pumps is a concurrence of politically motivated price developments and market mechanisms. Because after Corona, the demand for energy is increasing world-wide; this among other factors is the actual driver of the current development.

The current situation however provides a glimpse of what higher energy and therefore fuel costs will entail. For everyone cannot suddenly stop refuelling. In the short term, there is neither enough alternative energy (e.g. bio-fuels, hydrogen, green electricity) to safeguard mobility and goods transport by road, air or water, nor enough vehicles or even an adequate charging infrastructure to supply all the planned e-cars.

If however there is now an upturn in the economy, more goods are transported and therefore the demand for fuel increases, this will inevitably mean higher logistics costs. These are reflected in all sectors of the economy.

According to media reports, Hans-Jürgen Völz, the chief economist of the German Association for Small and Medium-sized Businesses, has already warned of a “genuine economic crisis” as the soaring fuel prices represent a massive burden on the economy and endanger jobs and growth as well as prosperity.

Just how right he could be is illustrated by the inflation rate, which rose to 4.1 per cent in Germany in September. The first European countries have already imposed a ceiling on fuel prices. It remains to be seen whether this will also happen in Germany.