Environmental regulation in Germany is demanding
While environmental regulation in Germany is demanding and energy taxation is
among the highest in the EU, energy taxation is subject to exemptions which weaken
incentives to reduce the environmental externalities of energy use.
Tax exemptions and subsidies which are harmful to the environment have a budgetary cost of about
11⁄2 per cent of GDP (Umweltbundesamt, 2014). Achieving environmental objectives in a way
that is less costly to the government and taxing environmental externalities more
consistently could thus create more fiscal space.
Some energy-intensive manufacturing
industries (such as chemicals, iron and steel) and agriculture are exempt from energy
taxation. The gap between electricity prices paid by households and energy-intensive
manufacturing firms is particularly large, as reported in the 2014, OECD Economic Survey of
Germany (OECD, 2014a).
Coal is virtually tax-free (OECD, 2012b).
Tax breaks on business cars and commuting allowances encourage car use.
EU Forecast
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