German-French initiative for a carbon price floor

Although the German Conservatives and Social Democrats are officially committed to the Paris Agreement, they have already abandoned the German climate targets for 2020. In order to revive climate policy, Germany should take up the proposal of French President Emmanuel Macron for a minimum price of 25 to 30 euros per ton of CO₂ in the European Emissions Trading System. This is the recommendation of an op-ed by Ottmar Edenhofer, Director of the Mercator Research Institute on Global Commons and Climate Change (MCC) and Christoph M. Schmidt from the Leibniz Institute for Economic Research (RWI) in the Frankfurter Allgemeine Zeitung.

The draft of the coalition agreement shows the lack of ambition by the two parties in terms of climate policy. Instead, Germany and France together should lead the way—this would encourage other countries to join in. The scientists describe their basic idea as follows: “As long as the price on the European market for carbon permits falls short of the agreed upon minimum price, the countries would raise an additional national carbon tax to compensate for the difference from the minimum price. The lower the price on the emissions market, the higher the national tax. If the price for carbon permits exceeds the minimum price, the additional tax would be abandoned.”

In addition, the authors propose a reform of energy taxes across sectors. So far, the electricity tax provides the wrong incentives, “because it taxes electricity higher than, for example, diesel fuel”. Taxation should rather be adjusted according to the respective carbon content of energy sources, argue Edenhofer and Schmidt. The proposed introduction of a minimum price for CO₂ together with reform of energy taxes would make the necessary coal exit a lot cheaper. “Rather than the government deciding which power plants would need to go offline and when, market forces would decide instead—this would ensure a cost-effective coal phase-out.”