Should Germany provide more energy relief to middle-income households?

With the new gas levy arriving this autumn, economists in Germany are calling for a new relief package to support mid-range earners with their energy bills.

Woman takes euro note out of purse
A woman pulls a €5 banknote out of her purse. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

One idea on the table is to provide an “energy fund” of €100 per person that would be paid out monthly for the next 18 months.

This, according to the president of the German Institute for Economic Research, Marcel Fratzscher, would be the “best instrument” for relieving low- and middle-income households during the energy crisis. 

In October, the government will allow energy suppliers to add a levy of around 2.4 cents per kilowatt hour of gas onto customers’ energy bills. This will see bills for an average 160 square metre family home go up by around €556 per year, while people living in 50-square-metre flats could see their costs rise by around €120-170 annually.

The gas levy is designed to help struggling energy firms recoup the cost of replacing cheap Russian gas, deliveries of which have been dwindling in recent months. In addition, energy companies will be allowed to pass a proportion of future excess costs onto consumers. 

READ ALSO: EXPLAINED: How much will Germany’s gas levy cost you?

With household energy bills likely to triple or even quadruple, economists are arguing that more relief is urgently needed – and not only for those on the lowest incomes.

Chancellor Olaf Scholz (SPD) said last week that the government wants to assist working people who have no savings to fall back on and who cannot easily cope with the increased energy costs.

“This applies to quite a lot of citizens,” Scholz said. “I am concerned with those who earn €2800, €3200 or €4000 gross per month, for whom these are all major challenges.”

According to economist Fratzscher, this group includes more than one in five people in Germany.

Marcel Fratzscher

Marcel Fratzscher, president of the German Institute for Economic Research, speaks at an event in Berlin. Photo: picture alliance/dpa | Bernd von Jutrczenka

“These are mainly people in the low-wage sector, which is unusually large in Germany, and also many pensioners,” he told DPA. They tend not to have savings but at the same time don’t receive support from the state.

For this reason, soaring inflation and high energy bills are likely to hit this middle-income group particularly hard. 

READ ALSO: Germany pledges inflation relief tax package worth €10 billion

“We already have a strong social imbalance among this group as well,” Fratzscher said. “This can be seen, for example, in the increase in the number of people who are over-burdened with debt.” 

“Politicians must now urgently implement a third relief package that relieves this group as a top priority,” he added.

For Sebastian Dullien, scientific director of the Macroeconomic Policy Institute of the Hans Böckler Foundation, a second energy lump sum paid out in December would be the preferred option for relieving households.

This would follow the €300 lump sum in September but also take into account groups that were overlooked in the last energy relief package, such as pensioners who don’t receive housing benefit. 

“Another good option would be to introduce a gas price cap for a basic level of consumption per household,” Dullien told DPA. 

‘Left in the dark’

In the summer press conference last week, Scholz reiterated his plans for a third energy relief package in autumn. However, he has so far refused to give concrete details about the measures included, stating that these are still being discussed within the coalition.

Social organisations are calling on the government to announce any new measures before the gas levy is introduced on October 1st. 

READ ALSO: Germany’s Scholz pledges more relief for lowest earners

“The traffic light government has no time left to argue,” Social Welfare Federation (VdK) president Verena Bentele told the Rhein-Neckar-Zeitung on Wednesday. “We need a solution by September.”

Ursula Engelen-Kefer, vice-president of the German Social Welfare Association (SoVD), told the Neue Osnabrücker Zeitung that the government should roll out support soon to avoid social unrest in autumn.

“We cannot impose more and more burdens on the vast majority of society and at the same time leave them in the dark about how they will be supported,” she said. “It is crucial that the federal government quickly decides on relief measures that will directly reach the people”.

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United Arab Emirates to supply Germany with gas, diesel

The United Arab Emirates agreed Sunday an "energy security" agreement with Germany to supply liquefied natural gas and diesel as Berlin searches for new power sources to replace Russian supplies.

United Arab Emirates to supply Germany with gas, diesel

Emirati industry minister Sultan Ahmed Al Jaber called it a “landmark new agreement” that “reinforces the rapidly growing energy partnership between the UAE and Germany” as he signed the deal, which was witnessed by Chancellor Olaf Scholz, the UAE’s state news agency WAM reported.

Scholz is on a visit to the UAE, where he met with Emirati President Sheikh Mohamed bin Zayed Al-Nahyan.

Scholz said he “welcomed” the “energy security” agreement, WAM added.

As part of the deal, the UAE will provide “an LNG cargo for delivery in late 2022, to be used in the commissioning of Germany’s floating LNG import terminal at Brunsbuettel”, a North Sea port, the statement added.

UAE state oil company ADNOC completed its first ever direct diesel delivery to Germany earlier this month, and will “supply up to 250,000 tons of diesel per month in 2023”, it said.

The German leader is touring the Gulf in the hope of sealing new energy deals to replace Russian supplies and mitigate the energy crisis resulting from Moscow’s invasion of Ukraine.

On Saturday, Scholz met in Jeddah with Saudi Crown Prince Mohammed bin Salman, and later Sunday he was due to fly to gas-rich Qatar to hold talks with Emir Sheikh Tamim bin Hamad Al-Thani.

Energy transition

Scholz’s stop in the UAE included a tour of an environmental project at a mangrove park with Emirati climate change minister Mariam Almheiri.

Almheiri said discussions on Sunday would, in addition to energy security, cover “climate action and economic growth”.

“The UAE believes all three pillars must go hand and hand. We cannot look at one or two of these pillars separately,” she said.

She also reiterated Abu Dhabi’s insistence on “a just transition” away from fossil fuels.

Both the UAE and Saudi Arabia have been leading critics of what they describe as “unrealistic” transition models they say have contributed to the current energy crunch.

Scholz told reporters in Abu Dhabi that his country had “made progress on a whole series of projects here in terms of the production and purchase of diesel and gas”, while adding it was determined to avoid energy dependence on Russia in the future.

“The fact that we are dependent on one supplier and also dependent on its decisions will certainly not happen to us again,” he said.

“With the investments that we are now making in Germany, and that will become reality bit by bit next year, we will indeed have an infrastructure for gas imports for Germany, such that we are no longer directly dependent on the specific supplier at the other end of the pipeline, as we are with a pipeline connection.”

His visit to Qatar comes one day after France’s TotalEnergies signed a new $1.5 billion deal to help expand Doha’s natural gas production. Scholz said such projects were “important”.

“We have to ensure that the production of liquefied gas in the world is advanced to such an extent that the high demand that exists can be met — without having to fall back on the production capacities in Russia that have been used so far,” he said.