Pricing Carbon, Reforming Energy Prices. Pathways to a Cross-sectoral Market Design

How should the market be designed to enable efficient climate protection in Germany and drive sector coupling forward? A comprehensive carbon pricing scheme and a reform of taxes, duties and surcharges are key components. This position paper categorises the decisions from the Climate Action Plan 2030 and sets out options for how revenue from carbon pricing can be put to use to achieve a double dividend for climate protection. The following points are crucial:

• A uniform and comprehensive carbon price in Europe is the cornerstone of an efficient and effective market design. One obvious approach is to extend the European Emissions Trading System (EU ETS) if possible to all sectors by 2030.
• Germany should persuade other Member States to join it in its national carbon pricing scheme in the transport and heating sectors, which the Federal government decided in the Climate Action Plan 2030. Together, they will be able to form a strategic carbon alliance which would ideally lead to an expansion of the EU ETS.
• The revenue from carbon pricing can be used to reform the system of taxes, duties and surcharges with the objective of relieving the tax burden on excessively severely taxed energy carriers. In this way, a double dividend can be achieved and sector coupling fostered. Replacing the EEG surcharge and reducing electricity tax is of particular assistance.
• Emissions in the transport sector are today at the same level as in 1990. A better market design could make a decisive contribution to solving these climate policy challenges in the transport sector in a targeted and efficient way. The Federal government should initiate a process to develop suitable solutions.

acatech/Leopoldina/Akademienunion (Eds.): Pricing Carbon, Reforming Energy Prices. Pathways to a Cross-sectoral Market Design (Series on Science-based Policy Advice), 2021. ISBN: 978-3-8047-4119-5