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ENERGY

Germany faces up to problematic dependence on Russian gas

Rising tensions with Moscow over Ukraine have exposed Germany's problematic dependence on Russian gas, inflaming an already heated debate over soaring energy prices.

A letterbox with the label
A letterbox with the label "Gas for Europe" in an office building in Schwerin. The subsidiary for the certification of the Nord Stream 2 gas pipeline was founded recently - and the company Gas for Europe GmbH will own and operate the German part of the pipeline. Photo: picture alliance/dpa/dpa-Zentralbild | Jens Büttner

As Germany pursues its target to transition to cleaner energy sources over the next decade, Europe’s biggest economy has counted on gas temporarily
filling the gap while it builds up its sun and wind energy capacity to replace nuclear and coal plants.

But with Russia now providing 55 percent of Germany’s gas imports – up from 40 percent in 2012 – Berlin’s best-laid plans may well go awry if Moscow were to march on Ukraine.

With gas making up 26.7 percent of Germany’s total energy consumption and heating one in every two households, Chancellor Olaf Scholz’s government has admitted that if sanctions had to be imposed on Russia, they will also hit the German economy.

More precisely, the controversial Nord Stream 2 pipeline, which was set to double supplies of cheap natural gas from Russia to Germany, now hangs in the balance.

READ ALSO: The German gas pipeline at centre of Russia dispute

In a warning hailed by the United States as “very, very strong”, German Foreign Minister Annalena Baerbock has said the pipeline will be part of a sanctions package if Russia made a move on Ukraine.

Energy security

Long viewed as a problem by Western allies and Ukraine, the €10-billion ($12 billion) pipeline had been seen by former chancellor Angela Merkel’s government as a key stop-gap option while Germany shifts to renewables.

But critics have repeatedly warned that it would only serve to increase German dependence on Russian energy, and Ukraine President Volodymyr Zelensky has branded it a “dangerous geopolitical weapon of the Kremlin”.

Yet weaning Germany off Russian energy will be painful.

German Foreign Minister Annalena Baerbock with her Russian counterpart Sergei Lawrow in Moscow on January 18th.

German Foreign Minister Annalena Baerbock with her Russian counterpart Sergei Lawrow in Moscow on January 18th. Photo: picture alliance/dpa/Pool Reuters/AP | Maxim Shemetov

“If we give up Russian gas and Nord Stream 2, it won’t be lights out immediately, but it will be expensive, it will exacerbate unanswered gas supply questions for the future, and we’ll have a problem,” warned chairman of the mining, chemistry sector union IG BCE, Michael Vassiliadis.

With time pressing, the German government is launching a massive programme to build wind turbines covering two percent of the country’s land surface, and require the installation of solar panels on roofs.

“Phasing out the burning of fossil fuels also strengthens Europe in geopolitical terms and protects the climate,” Economy Minister Robert Habeck said earlier this month.

But with the nuclear energy phase-out due to be complete by year’s end and coal power also to be halted by 2030, Germany will have to make up the
difference by raising its gas capacity by a third over the next eight years, according to the Fraunhofer economic institute.

Already, Germany’s gas consumption is on the rise. In 2021, it made use of 1.003 billion kWh, an increase of 3.9 percent on the previous year.

But the longer-term strategy does not solve the looming energy emergency at hand.

‘Alternative’

To reduce its dependency on Russia in the near future, the government is banking on diversifying its imports.

One “alternative” would be to exhaust the capacity of Europe’s liquified natural gas terminals, a source in the economy ministry said.

This solution, in which fresh imports could be delivered from the United States, Australia or Qatar, would, however, come at a price, the source indicated.

Higher costs could give a fresh push to inflation, which has hit multi-year highs in Germany and the eurozone in recent months.

The situation is not made any easier by Germany’s exceptionally low gas reserves, which currently sit below 42 percent of full capacity.

Nevertheless, the government sought to put a brave face on the issue.

Dismissing the risk of an acute shortage, Baerbock said on Friday that sufficient supply was “assured”.

SEE ALSO: Germany is in a muddle over Russia – and it only has itself to blame

By Florian CAZERES

Member comments

  1. So Germany has 2 options.
    Cave to Russia and hope prices dont go up.
    Or
    Loose the Russian gas imports see prices take off into a new stratosphere. The knock on effects will be beyond catastrophic. We will all be back on black bread by summer.

  2. Germany’s energy policies are responsible for the quagmire that it’s currently in. Abandoning nuclear power and phasing out coal only compounds the problem and forces the country to become more dependent on foreign energy sources. That impacts the economy as well as national security. Germany is at the mercy of Russia, and can do little about it.

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ENERGY

When will Germany’s fuel tax cut come into force?

As part of its package of energy relief measures, the German government is hoping to give car drivers a discount at the petrol pump. But how will it work and when will it come into force?

When will Germany's fuel tax cut come into force?

What’s going on? 

It hasn’t escaped anyone’s attention that energy prices have skyrocketed in recent months. Along with eye-wateringly high heating and electricity bills, drivers have also been feeling the pinch at the petrol pump.

Even before the Ukraine war broke out, energy supply issues were driving up prices at petrol stations – a situation that led to the absurd spectacle of Germans driving across the border to Switzerland (one of the most expensive countries in the world) to fill up their tank for less.

In the early weeks of the war, it wasn’t uncommon to pay €2.20 per litre for Super E10 petrol in Germany, while diesel could average as much as €2.29 per litre. This represents a whopping 45 cent increase on petrol prices and 65 cents on diesel prices compared to the same time last year.

To help people struggling with the price hikes, Finance Minister Christian Lindner (FDP) initially pitched the idea of a “fuel discount” that petrol station owners could offer to customers and then claim back from the state. But there was such an intense backlash to this proposal that it essentially fell at the first hurdle and never made it into the government’s package of energy relief measures.

Instead, the government is hoping to give drivers a discount another way: by reducing the energy taxes levied on each litre of fuel for three months. It’s hoping that this will also go some way to reducing petrol prices over summer. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

But haven’t fuel prices gone down again recently?

That’s right. But experts don’t think this amounts to a stabilisation in the long term.

Both petrol and diesel prices sunk quite significantly after the initial price shock, but are climbing up steadily again – and according to motorists’ association ADAC, both remain a little over €2 per litre

This means drivers are still paying significantly more to fill up their tanks than they were a year ago, so the upcoming tax cut will no doubt be welcome. 

How much of a discount can drivers expect?

If all of it is passed on to consumers, the cut in energy tax is expected to reduce the price of a litre of diesel by around 14 cents, while a litre of petrol will be reduced by almost 30 cents.

That’s equivalent to a saving of €15 on a 50-litre tank of E10 and €7 on a 50-litre tank of diesel. 

Of course, a lot also depends on the development of the energy market: if prices continue to go up, drivers may not feel they’re saving a great deal, but it should make a difference in the short-term.

According to ADAC, around 48 percent of the cost of a litre of fuel goes directly to the state through the CO2 tax, energy tax, value-added tax (VAT) and other fossil fuel taxes – so tax cuts can make a big difference. 

But the price of purchasing fossil fuels (which has been affected through the war and supply chain issues) and the strength of the dollar are also important factors that determine how much horror drivers experience on their visits to the petrol station. 

Fuel prices in Germany March 2022

Fuel prices at a petrol station in Cologne on March 9th, 2022. Photo: picture alliance/dpa | Oliver Berg

What’s the timeline for this? 

The government is hoping to pass its entire package of energy relief measures in the Bundestag on Thursday and get approval from the Bundesrat on Friday. This will get the ball rolling for many of the measures to launch next month. 

Much like the €9 monthly travel ticket for trains and buses, the fuel tax cut is a time-limited measure, and just like the discounted ticket, it will run from the start of June to the end of August.

Since it’s up to petrol station owners to pass their savings onto consumers, however, experts predict a lag of a few days before drivers start seeing the tax cut reflected in the fuel prices. 

At that point, ADAC is predicting that drivers will go on a manic spending spree, so they’re advising people not to drive in the early days of June with a near-empty tank. If they do, they could face some long queues at the petrol station. 

Aren’t we trying to save on energy at the moment?

Well, quite. With fears growing that Russia could turn off the taps in retaliation for Germany’s support for Ukraine, the message from the government has been all about conserving energy as much as possible in the lead-up to winter.

But by reducing the price of fuel, the same government is essentially encouraging people to use their cars more often, economists say. 

“It is counterproductive to lower petrol station prices in this situation, because then people will drive more,” economist Veronika Grimm told Tagesschau. “And that is exactly the opposite of what they want to achieve.” 

READ ALSO: Russia using energy ‘as weapon’, says Berlin

An ARAL petrol station in Leipzig.

An ARAL petrol station in Leipzig. Photo: picture alliance/dpa/dpa-Zentralbild | Jan Woitas

At this point, you might expect an uproar from the Greens – who are part of the governing traffic-light coalition along with the Social Democrats (SPD) and Free Democrats (FDP). But that uprising seems to have been headed off at the pass by the €9 public transport ticket that will run alongside the fuel discount. 

In fact, Economics Minister Robert Habeck (Greens) has admitted that the tax cut “isn’t the most targeted measure” but says the continued high price of fuel will still put many people off driving.

“Many people are suffering from the high fuel prices,” says Habeck. “They’ll still suffer enough even if the fuel tax is lowered for three months. So in truth it’s not really cheap driving.” 

READ ALSO: EXPLAINED: What Germany’s relief package against rising prices means for you

What else are people saying? 

The other major criticism of the fuel tax cut is that it’s likely to benefit the wrong people. 

“Typically, those who drive a lot benefit from fuel rebates,” Grimm told Tagesschau. “And those are the ones who have who have multiple cars. These are typically the higher earners.” 

This has led to criticism that the €3.15 billion that the rebate will cost is essentially a redistribution of wealth to the top of society, rather than the bottom.

READ ALSO: Who benefits the most – and least – from Germany’s energy relief measures?

Obviously, the government disagrees with this assessment. They argue that cheaper fuel will help drivers foot their bills and stimulate the economy at the same time.

The motorists’ association ADAC is also concerned that the measure may lead to queues at petrol stations, but says that drivers can still opt to save fuel of their own accord over summer.

The best way to do this is to pump up the tyres, ditch the roof rack and other unnecessary weight, and drive at a slow, steady speed to avoid accelerating and braking too much, ADAC explains. 

READ ALSO: Germany’s largest car club calls on drivers to ditch their cars

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