As a leading industrial nation, Germany bears a special responsibility for climate protection. The country has shown a special preoccupation regarding this matter, with updates that are hoped will give a further boost to modernisation and at the same time bring about an energy and mobility turnaround in order to achieve the climate protection targets until 2030 and to operate in a greenhouse gas neutral manner by 2050.

The Federal Ministry of Finance is responsible for climate protection financing and is investing around 54 billion euros in climate-friendly infrastructure, technologies and social equalisation by 2023. In recent months, the Federal Ministry of Finance has been very swift in launching new legislation for the Climate Protection Programme 2030. Germany is trying to cushion the effects of the COVID-19 pandemic crisis with a high financial outlay and, now that the economy has started up, continues to see climate protection not only as a priority but also as a possible contribution to a rapid economic recovery.

The following measures are included in the climate protection programme:

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Coal phase-out

Germany is the first industrialized country to finally switch from coal-based electricity generation to renewable energies. 40 billion euros have been earmarked for the transition, which will help the affected regions to build new capacities and create new jobs.

The law provides for the following regulations:

  • Reduction and termination of coal and lignite-based electricity generation.
  • Cancellation of released CO2 certificates.
  • Compensation for electricity consumers in the event of an increase in electricity prices due to the coal phase-out.
  • Payment of an adjustment allowance to older workers in the coal sector to help them make the transition to retirement.
  • Extension and further development of the Combined Heat and Power Act to promote the conversion of coal to flexible and more climate-friendly power generation.

Tax incentives for electric mobility

With the law on tax incentives for electric mobility, the Federal Ministry of Finance is ensuring that more low-CO2 cars are put on the road to reduce pollutant emissions from road traffic and thus keep the air clean. The aim is to achieve the registration of 7 to 10 million electric vehicles in Germany by 2030. The law on tax incentives for electric mobility includes the following measures, among others:

  • Company car taxation: Extension of the current special regulation for electric vehicles.
  • Special depreciation for electric delivery vehicles.
  • Trade tax relief for the rental and leasing of electric vehicles.
  • Extension of the tax exemption for charging current and the flat-rate taxation for the transfer of ownership of a charging device.
  • Tax-exempt Job Ticket and introduction of flat-rate taxation for Job Tickets.
  • Prolongation of the tax exemption for the provision of company bicycles or electric bicycles to employees.
  • Extension of the tax exemption for private use of company bicycles or electric bicycles.

Mobility turnaround: Promotion of rail and cycling

When travel returns to normal, it is expected that rail travel will become cheaper and flying more expensive. While VAT on rail tickets has already been reduced to the rate of 7% as of 1 January 2020, air travel tax has increased as of 1 April 2020. Taxes will be raised more sharply for shorter flights (approx. 74%) and for longer flights over 2,500 km the tax rates will increase by approx. 41% in each case.

The Coronavirus crisis shows once again that cycling is becoming an increasingly important alternative as a means of transport. Cycling not only keeps us fit and protects the environment, but also ensures that we reach our destination without contact and protecting social distancing. The Federal Government is making cycling more attractive by further improving traffic safety and road traffic conditions for cyclists.

With the following investments in the creation of bicycle-friendly conditions that benefit all citizens and reduce CO2 emissions:

  • Expansion of cycle expressway and cycle paths on federal roads.
  • Special urban/rural cycling programmes to ensure equal opportunities for cycling (safe and modern parking facilities, expansion of infrastructure for load bicycles).
  • Financial assistance for investment measures of the federal states and municipalities for the realisation of: cycle networks, safe and modern parking facilities and bicycle parks, expansion of cycle paths on provincial roads and better infrastructure and framework conditions for load bicycles.

These massive investments and the infrastructural improvements they bring will also strengthen the trend towards the increasing use of electric bicycles and other new forms of mobility.

Energy turnaround: Climate-friendly renovation of buildings

Energy-related renovation measures are to be promoted more strongly. These concerns, for example, the installation of new heating systems that pollute the climate less and emit less CO2. The application for the tax subsidy is simple and unbureaucratic and can be made via the tax return. Both individual measures (such as the installation of new windows) and comprehensive renovations can be credited. A total of 200,000 euros per residential building are eligible for funding for renovation measures. The installation of oil-fired heating systems will no longer be permitted in buildings in which climate-friendly heat generation is possible from 2026.

CO2 pricing supports climate-friendly behaviour

There is a simple principle behind CO2 pricing: Whoever is responsible for CO2 emissions should pay, and whoever reduces emissions should benefit. So far, this has only been the case in industry and the energy sector, as these are already subject to the EU emissions trading system. In Germany, a national emissions trading system will be introduced from 2021. In principle, companies that put fossil fuels on the market will in future have to surrender emission certificates for every tonne of CO2 they emit. These additional costs can be passed on by the companies to the consumers via the prices for fossil energy products such as heating oil, gas, petrol and diesel. The revenue from the CO2 price, in turn, is used entirely for climate protection or returned to the citizens.

The resulting steering effect will make climate-friendly products and behaviour more attractive in the future and thus influence consumer decisions, for example when buying a car or heating system.

Compensation for additional burdens: Commuter allowance and EEG levy

All revenues from the CO2 price are used for climate protection and social compensation measures. This helps low-income earners in particular and at the same time reduces the cost of operating electricity-operated products (e.g. heat pumps or e-cars). If the income from the CO2 price increases, the electricity price is further reduced.

In addition, support is provided to those who are particularly affected by the CO2 price because of long distances to work. In order not to penalise commuters with long commuting distances to work, the commuter allowance will be raised from 2021 from the 21st kilometre from the current 30 cents to 35 cents.

Low-income earners will be able to claim a mobility premium for journeys of 21 kilometres or more as income-related or business expenses in addition to the flat-rate travel allowance from 2021 to 2026. It ensures that support is also provided to those commuters who do not pay income tax because of their low income and are therefore not relieved by the commuting allowance.

Transparency and performance review

In order to achieve the climate protection goals in 2030 reliably and predictably, the annually defined reduction goals (“sector goals”) resulting from the climate protection plan 2050 are legally established for all sectors. This procedure creates the greatest possible transparency and performance monitoring. In this way the Federal Government creates objectivity regarding the achievement of the climate targets. If a sector does not meet its statutory targets, measures are quickly taken to achieve the targets.

Germany, as a country with a high level of industrialisation, is making significant efforts in the area of environmental protection, with a particular impact on all aspects of tax compliance. In Auxadi we are experts in international accounting, tax compliance and payroll management, connecting America with Europe, LATAM and Asia, providing value added services to over one thousand clients in more than 50 jurisdictions.

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Peter Spiller
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All information contained in this publication is up to date on 2020. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.