ZEW President Achim Wambach on the Gas Price Cap Proposed by the Federal Government

On 10 October, the German expert commission on gas and heat prices (“Gas und Wärme”) presented its recommendations for measures by the federal government to cushion the impact of soaring prices for households and businesses. ZEW President Professor Achim Wambach comments on the possible design of the relief programmes.

“Businesses should not be treated like households. Firstly, some companies can pass on increased prices to the market. In many cases, this is already happening. These companies may even be highly profitable and do not need government aid. Secondly, businesses have the option to reduce or stop their activities. To a certain extent, this is also economically desirable, as gas consumption must be reduced by 10 to 25 per cent this winter compared to previous years. This necessary reduction may be counteracted by ill-targeted relief in certain sectors.

A general gas price cap should primarily aim to support small and micro enterprises, for example by limiting the amount of relief paid per company. Any additional aid should only be granted to companies that are not able to pass on rising costs. This is especially the case for energy-intensive companies with high trade intensity. Another criterion for granting government aid should be the amount of domestic value added. Many businesses have already taken this into account: Expensive gas is used wherever it creates most value, while low-profit activities are reduced. The gas price cap should not counteract this necessary reduction in gas consumption.”