
BiomassMuse was involved in a study on the impact of a CO2 tax on energy-intensive industries. Since the CO2 price plays an important role in successfully completing the energy and raw materials transition, the complex topic is presented in this article. The main focus is on the importance of CO2 pricing for German industry and the opportunities for an accelerated development of the bioeconomy.
Industrialization and fossil bioenergy
As experience shows, the switch from fossil to renewable biomass (hydrocarbons) is not a sure-fire success, but a mammoth task. Anyone who claims otherwise is a dreamer or a swindler. The challenge of this profound transformation is particularly great for an industrial nation like Germany. An iron, steel or chemical industry emerged in the epoch of industrialization that gave it its name. This social phenomenon is based on the possibility of using cheap energy. Energy that is only available in large quantities through the extraction of fossil biomass such as coal, natural gas or crude oil. Germany owes the wealth it has gained over the past generations to fossil and mental bioenergy. The notorious industrial landscape of Germany, including the technical infrastructure and the political framework, develops from the combination of both.
never change a running system
So why change something? Converting an energy-intensive industrial landscape built up over decades to a new energy system is a risky open-heart operation. Never change a running system! This is not just a dynamic sounding sentence made up of words juggled together at random, but the emotional quintessence of our hyperactive species. But it is also a fact that the energy-intensive industries use fossil bioenergy sources to manufacture and shape their or our materials (building materials, chemicals, glass, non-ferrous metals, paper, steel etc.). And these are finite. Not today and not tomorrow, but within the next generations. In addition, solid (coal), liquid (petroleum) and gaseous (natural gas) fossil bioenergy contribute to the greenhouse effect. To satisfy their hunger for energy, some countries are now relying on heavily criticized funding methods for organic compounds (fracking, oil sands). Many united groups of Homo Sapiens go so far as to use the environmentally harmful fracking gas to add another group of the global Homo Sapiens family to addiction. Unfortunately, very aggressive methods (North Stream 2 conflict) are used not only for the funding methods, but also when cutting out competitors in order to sell the energy sources. The fossil energy system is no longer running for various reasons, which is why it is right and necessary to change something.
CO2 price to finance the energy transition
So how does the switch from finite to infinite energy carriers succeed? Whereby “finite” and “infinite” refer to the time horizon of our fast-moving species. Detached from all dreams, who finances the transformation everyone wants but nobody wants? Absurd. In any case, this is the trillion-euro question to which we have been looking for answers not only in Germany since the beginning of the century. It cannot be conveyed that the money for this second major German turn will be taken from the limited budgets for pensioners, schools or the national defense in 30 years. For some years now, the financing of the energy transition has been discussed about who is causing the problem. Attention Attention my name is dioxide, carbon dioxide. Financing through the most important greenhouse gas CO2 and its equivalents (methane, nitrous oxide etc.). Specifically, this is to be implemented by introducing a price for carbon dioxide, the so-called CO2 price. The amount of the CO2 price should be measured directly by how much the action of a citizen or company contributes to the dependency on fossils, climate change and thus the costs (external costs) for the coming generations. Reasonable, logical and somehow elegant. The CO2 price debate was born. Accompanied by numerous scientists (PIK, MCC etc.), accelerated by the public actions of Fridays-for-Future and Extinction-Rebellion, the introduction of a national CO2019 price for Germany was discussed intensively in 2. The two applicants for implementation: CO2 tax or CO2 emissions trading. Now, if not linked to the promise of a cut, the topic of taxes rarely wins political elections, which may have been one of the reasons why it was so difficult to implement the CO2 price through a CO2 tax. Who wants to spend even more of their hard-earned money? In a country that has the highest tax rate in the world after Belgium and for saving a world that is very abstract in the future. What are the big differences between tax and emissions trading?
DIFFERENCES OF THE CO2 PRICE SYSTEMS | |
CO2 control | Emissions trading CO2 certificates |
State-prescribed CO2 price | Market-driven CO2 price |
Fixed height (specified by the state) | Flexible height (market driven) |
No limit on emissions | Emissions cap |
Payment upon consumption | Purchase of certificates in advance |
CO2 tax in the countries of Europe
Despite and a little bit because of the apocalyptic scenarios, there are some countries that have been introducing a CO2 price for many years. This includes nations such as Switzerland, Sweden or Slovenia. But not only countries with an “S” have opted for the tax on CO2, the Estonians and Finns are also willing to be taxed for their individual climate footprint. And yes we can, from next year (2021) “we Germans” will also belong to this noble community, which is ready to take on more responsibility for the coming generations of our species.
BEHG brings CO2 pricing for Germany
And which form of CO price did Germany, or its responsible people's representative, choose? Instead of the unpopular CO2 tax, there will be national trading in emission certificates. That says the name of the law that will regulate the CO2 price for Germany: the Federal Emissions Trading Act (BEHG). The main reason is the desire for compatibility with European emissions trading.
Even if from one CO2 emissions trading If you look closely, it looks more like a middle ground between the two systems for national CO2 pricing. At least the amount of the CO2 certificates is not determined by dynamic emissions trading on the market, but is specified as a fixed CO2 price by law (BEHG). This will apply until 2026 and then a maximum CO2 price will limit free trade.
National CO2 price complements EU ETS
The adoption of the Federal Emissions Trading Act is planned for the middle of the year. So far there is one Draft Fuel Emissions Trading Act from the 12.12.2019.
The CO2 price specified by the SESTA is intended to complete the European emissions trading system (EU ETS). The system is currently in the last year of the 3rd trading period (2013 - 2020). Since 2005, it has included the emissions from over 10.000 energy-intensive systems (power plants, industry) and has also regulated air traffic within Europe since 2012. In addition to this, the national CO2 price is allocated to the market prices for heating and fuel, which are not yet covered by the EU ETS. The SESTA regulates the energy sectors that are still missing: heat (space heating and hot water → heating of buildings) and mobility (road traffic). The third energy sector, the electricity sector, will continue to be controlled trans-European by the EU ETS. European and national CO2 pricing (factsheet Federal Environment Agency) Together and market-driven, they should advance the energy transition from fossil to finite, in the direction of renewable and infinite.
In the language of the BEHG draft it says as follows: The purpose of this law is to create the basis for trading in certificates for emissions from fuels and to ensure that these emissions are priced, insofar as these emissions are not covered by EU emissions trading, in order to contribute to the achievement of national climate protection targets [...] . The purpose of the national emissions trading system is to price fossil greenhouse gas emissions.
What are the CO2 costs in Germany?
After a comprehensive debate about its amount, the CO2 price in Germany will initially be (2021) 25 euros per ton of CO2. In the following years until 2025, it will increase in stages to 55 euros. What does such a CO2 price mean for potential price developments in everyday life? An average kilowatt hour of electricity currently releases around 450 g of CO2 in Germany (see graphic by the Federal Environment Agency). This means that a ton of CO2.222 is released for the consumption of 2 kWh of electrical energy and thus 25 euros are incurred as a CO2 price. Depending on the energy behavior of the consumer, this corresponds to the simple (hedonistic) to double (economical) electricity consumption of a German. The CO2 load in the heating area corresponds to about half, since the energy conversion of the primary energy source is more effective in the heating area. For fuels, a one-to-one implementation of the CO2 price is expected to increase by 5 to 10 cents per liter. Assuming a CO2 price of EUR 100 per ton, there is an increase of 20 to 40 cents per liter. The federal government plans to reimburse the citizens for the additional financial expenditure in other ways (climate money).
The emissions certificates are to be auctioned from 2026. How the CO2 price develops in the auction is regulated by the BEHG (Section 10) by specifying a price range. Experts from PIK and MCC (Edenhofer & Co) criticize that the CO2 price is still too low to have no effect. They fear that if the climate targets are to be met, the certificate price could rise surprisingly sharply from 2026, which guarantees the risk of social or economic upheaval. The scientists recommend a higher CO2 price to get started. There are more here Statements on the SESTA and the CO2 price, among others from the BEE, VDB and VDI.
Reduction of CO2 emissions
The nationally stipulated costs for the energy transition in Germany are borne exclusively by citizens and medium-sized companies. Currently, this is mainly done via the electricity sector, limited via the mobility (rail) and not at all via the heating sector. Financing takes place directly via the electricity price. Every kilowatt hour of electricity, regardless of whether it is fossil or renewable, supports the expansion of renewable energies through the EEG surcharge (currently 6.7 cents / kWh). Every kilowatt hour consumed, which includes the EEG surcharge in the bill, finances a renewable energy system and is thus a contribution to the energy transition in Germany. Every kilowatt hour saved is a direct contribution to climate protection (“Negawatt hours"). It should be mentioned that, depending on their energy intensity and the annual electricity consumption, selected industries are exempt or partially exempt from paying the EEG surcharge. The privileged companies pay a lower electricity price, which is sometimes only one fifth of the electricity price of a household. In this way, the competitiveness of the energy-intensive industry in the globalized markets and the associated jobs in Germany should be secured.
The following graphic by the Federal Environment Agency shows the relative CO2 savings in the electricity sector that have so far been achieved through the EEG and the expansion of renewable energies. The average CO2 emissions show how the CO2 load per kilowatt hour decreases in waves and has decreased since 1990 from 800 to currently around 550 grams of CO2 per kilowatt hour.
National CO2 price for industry
In European emissions trading, in addition to electricity consumption, process heat from industrial plants has also been issued with CO2 certificates. It is uncertain in what form the German CO2 price, in the guise of national emissions trading, will additionally burden industry or companies in the individual industries. The justification for the draft law (SESTA) states: The system in the heat sector includes emissions from heat generation in the building sector and energy and industrial plants outside the EU ETS. Sounds like national CO2 pricing after the exemption of selected industries, since the energy intensive participate in the EU ETS. On the other hand, emissions for the generation of space heating and hot water are not recorded by the EU ETS. So it remains uncertain whether there will be exceptions for the industry when it comes to implementing the CO2 price. The BEGH continues: Participants in the nEHS are the distributors or suppliers of heating and fuel. [...] In contrast to EU emissions trading, the national emissions trading system does not start with the direct issuers as the cause of the emissions, but at the upstream trading levels with the companies that place the fuels on the market (so-called "upstream ETS"). Means that the marketers of the primary energy sources are required to provide proof of a CO2 certificate, which is issued by a central trading point, probably the Federal Environment Agency, against payment of the statutory CO2 price. Double burdens for industry as well as for the energy industry should be avoided in any case. The draft law states: As far as possible, double recordings of fuel emissions from systems in the area of application of the EU ETS should already be avoided by exemption from the duty to deliver on deliveries to ETS systems.

The Climate Protection Act limits industrial emissions
Another law of the climate package, the Climate Protection Act (KSG), lists the six economic sectors, the actors of which together have to demonstrate fixed reduction targets for their CO2 emissions. These sectors are energy, industry, transport, buildings, agriculture and waste management. In the industrial sector, three source categories are differentiated, in which the emissions have to be recorded and communicated to the Federal Environment Agency for the annual review of the reduction targets. The source categories for industry are:
- Combustion of fuels in manufacturing and construction
- Industrial processes and product use
- CO2 transport and storage
The results of the emissions reports from all economic sectors (including industry) are brought together in an annual climate protection report, whereupon the climate protection plan is adjusted and specific programs of measures are initiated for the individual sectors. The programs of measures of the Climate Protection Act (BKG) are to be financed by the income from the CO price of the BEHG. The graphic shows that German industry has already saved 20 percent in CO2 emissions since the 1995s. That may not sound like much, but it happened in parallel with the rapid growth in industry (DAX 2.200: 2020, DAX 13.000: 2). Experience shows that COXNUMX emissions tend to increase with increasing levels of industrialization.
Study examines CO2 price for industry
A study published today (February 2th, 18.02.2020) examined the forecast of the costs that a CO2 price will incur for the industry. The study runs under the flag of the CO2 tax, but ultimately examines the financial effects on industry that can be expected from the introduction of a CO2 price. The study is published by the Mining, Chemical and Energy Industrial Union (IG BCE), or its Foundation for Work and Environment. As the name of the union aptly describes, its members include some of the most traditional and largest industries in Germany. The necessary adjustments to the energy transition are a particular challenge for these energy-intensive industries that are in global competition. Hence the idea of proactively determining the impact of CO2 pricing. The study was carried out in cooperation with Schultz projekt consult (SPC), a consulting company for energy policy and energy markets based in Berlin. Ron Kirchner, blogger at BiomassMuse, set up the CO2 tax models for SPC, calculated and graphically evaluated the results. One of the reasons why the topic of CO2 tax for industry is presented so extensively on BiomassMuse. Together with Reinhard Schultz, Malte Harrendorf and Iman Sheiko, the SPC team implemented the study on COXNUMX tax, EU ETS and Merit Order and successfully completed it with the Foundation for Work and Environment.
The study explores how different CO2 tax scenarios affect the energy costs of selected industries. Specifically, the expected energy prices for electricity, heating and with restrictions in the mobility area are calculated. The considered industries with particularly high energy consumption are:
Maybe give a few figures here (energy consumption, energy costs, emissions)
- aluminum industry
- chemical industry
- glass industry
- Copper industry
- Paper and pulp industry
- Iron and steel
The study on climate tax looks at the complex topic of CO2 pricing from many perspectives and deals with a wide variety of scenarios and risks associated with this fiscal policy measure. Not really neutral, but as a co-author of the study on CO2 tax for industry (LINK), I would like to recommend reading or leafing through it. I also want the Labor and Environment Foundation for the commissioning of the study and the Schultz project consult Thank you for the opportunity to create the climate models for CO2 pricing.
CO2 pricing meets 4th industrial revolution
It is understandable that companies in the energy-intensive industry are initially not excellent friends of the CO2 price. The provision of process heat and the supply of electricity are largely based on coal and natural gas with their respective CO2 footprints. However, the main reason for the rejection of CO2 pricing on the part of industry is that the climate stabilization measure does not affect all market participants in our globalized world equally, but is limited to European companies. However, I think it is exaggerated to put the worry about deindustrialization in Germany on the introduction of a CO2 price. In the dystopian case, the CO2 price is one of several points that puts heavy industry in Germany to the test at the beginning of the 21st century.
When assessing the impact of a CO2 price on industry, three aspects should not be neglected.
First, the industry can take adaptation measures. When switching to CO2-neutral energy systems, many doors are open to the creativity of companies during the 4th industrial revolution. Innovative adjustments can quickly reduce the costs of the CO2 levy. This goes so far that the energy costs after the adjustment can even be lower than at the moment, since the renewables, once installed, have very low marginal costs. However, this open heart surgery requires extensive investments. Investments that need to be supported by close and trusting cooperation with politicians. The industries need stable framework conditions in order to plan the restructuring for the world of tomorrow. New goals or technologies must not be specified here every five years. In addition, the legal framework must be coordinated and should mesh like in a planetary gear. Only then can investment security be achieved for the switch to climate-friendly energy sources and the protection of jobs in industry. Admittedly, it is easier to formulate such an honorable goal in an article than to actually enforce it in the specialist committees and readings of the Bundestag and Council.
Second: carbon leakage protection. If the going gets tough and reality shows that a low CO2 price affects the international competitiveness of European and German industry, politicians have announced that they will help. The EU commissioner for climate protection, Frans Timmermanns, only assured at the beginning of the year (2020) that there will be a CO2 border adjustment for carbon leakage protection of the European industry if the international competitors refrain from CO2 pricing. At this point, too, it must unfortunately be said that the implementation of the CO2 border adjustment on imports and exports will be a great challenge in practice and the bureaucracy on this already complex topic will continue to grow
Price on CO2 accelerates the development of the bioeconomy
Thirdly, the CO2 price leads the industry to put a stronger focus on the chemical compound carbon dioxide and to scrutinize its position in the carbon cycle. Hopefully in the future we will see more industrial companies that make a virtue of necessity. This means that the use and expansion of interesting CO2 usage paths (CCU) holds enormous potential. Especially for companies from industry and the energy sector, which are among the largest selective CO2 emitters. As soon as there is a rethinking of CO2 within society and this is no longer thought of only as a greenhouse gas, but also as a valuable raw material, for example for bioeconomy paths, the industries sit figuratively formulated on a bubbling gold source. German industry can also successfully switch from fossil to renewable energy sources First movers do. The status of a pioneer harbors dangers, but it also brings opportunities. That is why it is important to stand by your own standards (quality, environment, climate) and thus to be among the pioneers of a new industry. One of the valued qualities of “Made in Germany” has always been that the products are innovative. This applies above all, but not only, to plant engineering, the automotive industry or the development of chemical processes. In addition to the feared risks, the early changeover also offers the chance of a technological advantage. Assuming that the industries in China, India or the USA follow suit when it comes to fossil fuels (which they will have to do at some point since they are finite), European and German industries will benefit from their advantage. It remains to be seen whether we will trigger a green economic miracle, as the impressively ambitious President of the EU Commission Ursula von der Leyen is aiming for. The stars for one Green miracle in any case were never better in the EU (European Green Deal, FFF etc.) and Germany (coal exit law, climate protection law, BEHG)