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Germany’s Ruling Coalition Is Divided Over A Carbon Price Hike

The ruling coalition in Germany is still split on how much the domestic carbon price should rise amid stubborn inflation that could be further fueled by higher energy prices, sources close to the government told Bloomberg on Wednesday.

In 2021, Germany introduced a carbon price of $27.39 (25 euros) per ton, as part of its net-zero ambitions. The price rose to $32.87 (30 euros) per ton as of January 2022 and was expected to continue rising in the following years.

But in September 2022, the German government froze the carbon price increase for one year as part of a relief package to help households and industry in the energy crisis after all gas deliveries from Russia to Germany stopped. The carbon price was set to increase to $38.35 (35 euros) per ton for 2023, but this increase was scrapped.

Now the coalition government of Social Democrats, Free Democrats, and the Greens is discussing the amount of the next increase.

According to Bloomberg’s sources familiar with the thinking of Finance Minister Christian Lindner, the minister seeks to limit the increase to $43.84 (40 euros) per ton, which would be $0.033 (0.03 euros) per liter of gasoline or diesel more. Lindner, as a finance minister, is looking to limit the possible fallout on inflation in Europe’s biggest economy.  

But Economy Minister Robert Habeck, a prominent member of the Greens, has come under pressure from his party and parliamentary group to seek a higher increase in carbon prices, to $49.33 (45 euros) for 2024, as it was planned before the energy crisis and the suspension of the carbon price hike for a year.   

Currently, discussions are ongoing between the finance and economy ministries, Bloomberg sources said. The respective ministers are expected to reach an agreement on the carbon price increase before the end of August, according to the sources. 

By Charles Kennedy for Oilprice.com

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