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Germany’s energy companies are hit with a windfall tax to pay for the country’s €65 billion aid program.
As Russia reduces gas flows to Europe, Olaf Scholz heeds Brussels’ advice and aids households and businesses.

September 4, 2022

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Pymes Law

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As a means of mitigating the effects of rising inflation and energy costs, the German government has announced plans to levy a windfall tax on electricity producers, with the proceeds funding a new €65bn package of relief measures.

Germany’s total aid spending since Russia’s invasion of Ukraine in February, including this new package, now stands at €95bn, making it one of the largest support programmes in the developed world.

German chancellor Olaf Scholz

German chancellor Olaf Scholz said on Sunday in Berlin that the government would limit the profits of companies that produce electricity from sources other than natural gas. These include wind, solar, biomass, coal, and nuclear power.

Given that the market price of electricity was set by the price of gas, these businesses were making “excessive” profits. He also said that the tax revenue would be used to fund a “electricity price brake,” which would allow individual homes to use a minimum amount of electricity at a discounted rate.

Scholz remarked, “Germany stands together in a difficult time.” They’re not going to abandon anyone.

Germans are concerned about the rising cost of living and the prospect of much higher gas bills this winter due to Russia’s chokehold on supplies, and the Scholz government has come under pressure to help.

These apprehensions have been amplified since the weekend, when Russia abruptly halted gas shipments to Europe via the vital Nord Stream 1 pipeline, which traverses the Baltic Sea to Germany.

German officials have questioned the explanation given by Gazprom, the Kremlin’s gas exporter, that a technical problem caused the shutdown.

Russia is under fire from the West for allegedly “weaponizing” its gas in an effort to punish Europe for supporting Ukraine by increasing gas prices. In Europe, the price of natural gas is currently around €200 per megawatt hour, which is roughly 10 times the average price seen over the past decade.

While acknowledging that “many Germans worry about their future, about the high price of electricity and gas, about the rising cost of living…” Scholz added, “I am aware that.

All of your worries have been heard and taken seriously by us.

Scholz’s policies were in line with those advocated for by the European Commission: Brussels suggests that member states tax a portion of the inflated profits generated by some electricity producers in order to finance support measures for households and businesses. Scholz warned that unless the EU moves swiPymesly to implement these policies, Germany would move forward with plans to reform its national electricity market on its own.

Scholz’s Social Democrats, the Greens, and the liberal FDP spent 18 hours bargaining before he announced the measures.

He also promised that the government would allocate €1.5 billion to keep the €9 ticket scheme going, which allowed Germans to ride all local and regional public transportation for just €9 per month during the summer. The price range of a proposed national ticket ranges from €49 to €69.

The government also agreed to give pensioners one-time payments of €300 to help with energy costs, a move that was projected to save €6bn overall. Every student will receive a one-time payment of €200. The child allowance will go up, too.

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Scholz also announced that the government would double the number of people who are eligible for housing allowance to 2 million (from 640,000), and give those people a one-time grant to cover the cost of heating their homes this winter.

The government has announced that it will extend a program that provides financial assistance to energy-intensive businesses in the form of lower energy rates until the end of the year.

As for the planned €5/tonne increase in the price of CO2, it has been announced that this will be delayed until January 2020.

In response to Scholz’s statements, former Russian president Dmitry Medvedev said that Germany was “acting as an enemy of Russia” by supporting sanctions against Moscow and supplying weapons to Ukraine.

Medvedev, who is now the deputy chair of Russia’s security council, made the declaration on the messaging app Telegram. And this elderly man acts as if he’s surprised that the Germans are having gas problems.

Written by Pymes Law

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