“Most are not prepared for this price development.”

Gas customers may have to expect an additional 1,000 euros on their annual heating bills from 2027, predicts ZEW Mannheim’s President Professor Achim Wambach, PhD. From then onwards, consumers will have to pay for their CO₂ emissions – and this is going to be expensive.

In an interview with Felix Petruschke, editor for finance & real estate at WirtschaftsWoche, Achim Wambach talked about European emissions trading and the implications of a rising CO₂ price for consumers.

WiWo: Professor Wambach, in 2025 the CO₂ price on transport and heating fuels will increase from currently 45 euros to 55 euros per tonne. From 2027, the European certificate trading scheme will take effect and the CO₂ price will be freely determined. You expect a price increase to up to 200 euros per tonne of carbon dioxide. What does that mean in concrete terms for consumers?

It would mean around 60 cents more for a litre of petrol. A four-person household still heating with gas would have to expect its heating costs per year to be higher by around 1,000 euros.

WiWo: In France, the so-called yellow vests took to the streets when fuel prices rose by a mere three per cent. Are the Germans prepared for this price development?

No, most consumers are not prepared for these prices. It would therefore be important to introduce the European certificate trading scheme – under which the CO₂ price will be determined by supply and demand – step by step and inform the public in good time.

WiWo: How do you arrive at the figure of 200 euros per tonne?

This is the finding of several studies carried out by ZEW and other researchers. The federal government itself expects a price between 100 and 200 euros. But it could also be more.

WiWo: Does the European emissions trading scheme provide for any measures to at least cushion the impact of the price development?

Yes. The EU Commission has created an instrument for releasing additional emission allowances if the price exceeds 45 euros per tonne over a period of two consecutive months. But the effect is likely to be rather limited in practice.

WiWo: Why?

The allowances can only be released once a year and the maximum number is limited to 20 million new certificates. Compared to the 1.2 billion allowances that will be in circulation in 2027, this is hardly relevant. So the cushioning effect will be limited.

WiWo: But the revenues from the CO₂ price are to be redirected to flow into funds for consumers.

Correct, German revenues will flow into the Climate and Transformation Fund, European revenues will flow into a social fund. The ultimate use and distribution of the money is a political decision.

WiWo: This creates a lot of social dynamite.

The social dimension is often neglected. Besides the climate money – which the current federal government had actually planned to introduce according to the coalition agreement – targeted funding programmes for the replacement of heating systems and for electromobility are also needed. And it makes a difference whether you live in a rural area or in a major city.

WiWo: What do you think of free CO₂ emissions trading in principle? 

It is the most efficient and cost-effective means of attaining our climate targets. For years, thousands of economists in the USA have, unsuccessfully, demanded a similar system because studies have shown that it would cost three times less than the Inflation Reduction Act, the major investment programme launched by Joe Biden.

WiWo: Are there further advantages?

Many other rules and regulations could become obsolete with an increasing CO₂ price. Think of Germany’s coal phase-out or the ban on combustion engines from 2035. The higher the CO₂ price, the fewer the incentives for investing in these fields, and the faster the funds are redirected into other industry sectors.

WiWo: Is the development of increasing CO₂ prices irreversible?

Generally speaking, yes. Even a new federal government could not change this; this would require amendments of EU legislation.

This interview originally appeared in the Wirtschaftswoche (in German).