Further development of national emissions trading

The hope is that CO₂ prices will help to redirect industry and the economy, saving CO₂ and protecting the climate. But does it work?

Our report for the German Environment Agency shows that yes, significant savings can be achieved, but only with the right communication strategy.

We conducted the study together with the Forum Ökologisch-Soziale Marktwirtschaft (FÖS) and the German Institute for Economic Research (DIW). It forms the basis for the second progress report of the German government, which it must publish in 2024 in accordance with the Fuel Emissions Trading Act (BEHG).

Impact of emissions trading on energy price development

The sharp price increases for all fuels during the energy price crisis of 2022/2023 are mainly due to higher product costs. The CO₂ price also has an impact on end consumer prices, but its share of energy prices has been low so far:

• At the beginning of 2024, the share of the CO₂ component in the end consumer price was on average between 5.9 percent for petrol and 11.4 percent for heating oil.
• For natural gas, it was 8 percent in January 2024.

CO₂ savings through national emissions trading

The German government's 2024 projection report calculates that national emissions trading will save 9.2 megatons of CO₂ equivalent in 2030. Of this, around 7.1 tons will be saved by the transport and buildings sectors.

In our report, we have estimated the steering effect of the Fuel Emissions Trading Scheme on CO₂ emissions using four sensitivities:

• high CO₂ price path: doubling of the CO₂ price compared to the assumptions in the 2024 projection report
• high CO₂ price path and increased exchange rates: the technologies used (vehicles, heating, etc.) are subjected to a new economic efficiency test with higher frequency and, if necessary, replaced by a more climate-friendly alternative
• high CO₂ price path and perfect foresight: this implies that future energy prices are known, e.g. due to appropriate communication, and taken into account in investment decisions
• high CO₂ price path, increased exchange rates and perfect foresight

The results suggest:

• An increased CO₂ price alone can only increase the effect of the BEHG to a limited extent.
• When CO₂ price, replacement rate and foresight are combined, the effect is the greatest.
• In total, in 2030 there would be an additional saving of around 10 megatons of CO₂ equivalents compared to the base scenario – the effect would more than double.
• Active political communication should be used to ensure that rising CO₂ prices are taken into account in purchasing decisions in a sustainable and noticeable way.
• If the increased operating costs resulting from CO₂ pricing lead to premature replacement investments, this will further increase the reduction effect of the BEHG.

Our approach

We have estimated the effect of national emissions trading on the development of CO₂ emissions in the transport and building sectors. Among other things, the effect on the fleet structure of passenger cars and heavy goods vehicles, on the development of sales and stocks of heat generators, and on consumer behavior were examined.

Background: National emissions trading is regulated by the Fuel Emissions Trading Act. The law was passed in 2019 and expands the corresponding EU directive.

Since January 2021, companies that trade in heating oil, natural gas, petrol and diesel have had to pay a CO₂ price – coal was added in 2023, and waste in 2024. Companies are obliged to purchase emission rights in the form of certificates for the greenhouse gas emissions caused by their products. Since the beginning of 2024, the CO₂ price has been 45 euros per tonne of CO₂. By 2026, the price is expected to rise to up to 65 euros per tonne of CO₂.

Links and downloads

The study (UBA website)

The 2022 evaluation

Project team: Alex Auf der Maur, Andreas Brutsche, Paurnima Kulkarni, Dr Noha Saad, Dr Andreas Kemmler, Karsten Weinert, Marie-Luise Zwicker

Last update: 18.12.2024