Nearly 100 billion yuan of aid a year, the German government passed the electricity price subsidy program

In order to reverse the economic decline and enhance the competitiveness of the local manufacturing industry, the German government has launched a new policy on electricity price subsidies.

On November 9, local time, the German government website announced that the German ruling coalition reached an agreement on a new plan to reduce the electricity cost of manufacturing enterprises in the next five years.

"We are radically reducing electricity taxes, stabilizing grid costs, and continuing to compensate for electricity prices so that businesses can better cope with current electricity prices. German Chancellor Olaf Scholz said that the amount of aid will be as high as 12 billion euros (about 93.4 billion yuan) next year alone.

The latest package of agreements reached by Germany's key government leaders includes the following measures:

• From 2024 to 2025, the electricity tax for all manufacturing enterprises will be reduced from the current 15.37 euros/MWh (about 0.12 yuan/kWh) to the lowest level allowed by the EU of 0.5 euros/MWh, a reduction of nearly 97%. This tax cut could be extended for another three years;
• Extend the existing carbon cost subsidy for five years for the 350 energy-intensive companies most vulnerable to international competition, and remove the first GWh no-subsidy requirement;
• Extension of the "super-limit" for about 90 specific enterprises for five years. The cap limits the total cost of a company's carbon emissions trading to a certain percentage of the company's gross value added from production.

In addition to the above measures, the German government has approved the continuation of subsidies for transmission grid costs in 2024 in order to reduce electricity prices.

Under the influence of factors such as the conflict between Russia and Ukraine, Russia has sharply reduced its energy supply to Europe.European gas and electricity prices soared last year。 Higher energy costs also weaken the global competitiveness of German producers, especially chemical and metal manufacturers.

According to data from Statista, the average wholesale electricity price in Germany was 87.32 euros/MWh in October this year, down nearly 45% from the same period last year, but still not back to 2020 levels.

In October, Wolfgang Gross Entrup, president of the German Chemical Industry Association (VCI), told the German newspaper Augsburg Allgemeine Zeitung that the cost of electricity in Germany is higher than in the United States and France, the chemical industry is becoming less competitive, and Germany has begun to deindustrialize.

The German economy has come to a standstill. In September this year, the latest forecast of the Macroeconomic Policy Institute of the Hans Berkerell Foundation in Germany predicted that the German economy will shrink by 0.5% this year, and the German economy is expected to grow by 0.7% in 2024.

"The German economy, which has fallen into recession due to energy price shocks, will not be able to really regain momentum in the coming months under the influence of high interest rates and the global economic downturn. The institute noted.

In May, Robert Habeck, Germany's Vice Chancellor and Minister for Economic Affairs and Climate Protection of the Green Party, proposed capping the price of industrial electricity at 60 euros/MWh.

However, the plan was strongly opposed by German Finance Minister Christian Lindner. Lindner comes from the Free Democrats (FDP), who support free markets. This has led to months of impasse for the government over electricity price subsidies.

In a statement on November 9, Lindner said that the decision to reduce the tax burden on energy-intensive production companies relies on market-based solutions and their advantages to implement a reduction in electricity taxes in the federal budget, with all measures financed as part of the debt brake.

"We have found a common way to support the competitiveness of the industry from medium to large companies. Habeck said.

The latest aid package is supported by German industry.

According to the Financial Times, Tanja Gönner, managing director of the German industrial lobby group BDI, believes that it is important to implement these decisions quickly so that companies can plan their production accordingly.

She also praised the German government for finding a solution that "does not require Brussels to approve state aid."

After the aid package was announced, on November 9, local time, the German DAX30 index closed up 0.8%, and the German chemical giants BASF and Wacker Chemical closed up more than 2% and 3%.

But according to Reuters, the German Chamber of Commerce and Industry (DIHK) believes that it is still questionable whether the scheme will ultimately be enough to ensure competitive electricity prices for the entire industry.

A statement published on the website of the German Chemical Industry Association conveyed a similar view, saying that the program "solves only a small part of the acute problems facing our industry" and does not provide additional help to improve international competitiveness.