Budget Negotiations and Consumer Costs: A Look Ahead
German Chancellor Olaf Scholz and Finance Minister Christian Lindner are currently in talks to draft a new budget, which may result in a hike in prices for refueling, heating, and air travel. The Financial Times German edition (FAZ) reports that subsidies for aviation fuel could potentially see a reduction to prevent an economic crisis, although this measure might not extend throughout the entirety of the next year .
Let's explore the potential impact on consumers' wallets:
Cost of Carbon Pricing
As the EU Emissions Trading System (EU ETS II) for transport and heating is set to come into effect in 2027, consumers can expect a notable increase in expenses by 2030. In certain scenarios, these costs may escalate by more than 1,000 euros annually .
If a typical 180 square-meter single-family home consumes 20,000 kWh of gas, its CO2 price could rise from 237 euros to:
- 307 euros in the lowest price scenario,
- 691 euros in the middle scenario,
- 1,127 euros in the highest price scenario by 2030 .
Furthermore, gas prices for new customers in Germany have spiked, with the average price rising by 43% since early 2024, mainly because of the reinstatement of the full value-added tax rate and heightened CO2 prices .
Air Travel Costs
The aviation sector itself is also bracing for increased expenses due to CO2 pricing. The EU is aiming to reduce CO2 emissions in international aviation by 5% compared to 2020 levels by 2030, and to achieve net-zero carbon emissions by 2050, substantial investment will be required in technologies like Sustainable Aviation Fuels (SAF) and carbon capture .
The production of SAF will add to the overall expenditure, with suppliers charging mark-ups. To meet the 70% SAF requirement in the fuel pool by 2050 as per the ReFuel EU Aviation Regulation, significant investment and cost-distribution mechanisms like the Carbon Border Adjustment Mechanism (CBAM) will be necessary .
Remember, the goal is to reduce emissions and shift towards cleaner energy, but these changes might also mean higher expenses for consumers and industries.
Sources:
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Enrichment Data:
- More than 1,000 euros per year in cost increases for consumers by 2030 due to the EU Emissions Trading System (EU ETS II)
- A typical 180 square-meter single-family home consuming 20,000 kWh of gas may see its CO2 price rise from 237 euros to:
- 307 euros in the lowest price scenario,
- 691 euros in the middle scenario,
- 1,127 euros in the highest price scenario by 2030
- Gas prices had risen by 43% since early 2024 due to reinstated value-added tax and increased CO2 prices for new customers in Germany
- The EU aims to reduce CO2 emissions in international aviation by 5% compared to 2020 levels by 2030
- Net-zero carbon emissions by 2050 will require substantial investment in technologies like SAF and carbon capture
- The production of SAF will drive up costs with suppliers charging mark-ups
- To meet the 70% SAF requirement by 2050, the investment and cost-distribution mechanisms like the Carbon Border Adjustment Mechanism (CBAM) will be necessary
