Germany to levy windfall tax on energy groups to fund €65bn aid package

The German government is to impose a windfall tax on electricity producers and use the proceeds to finance a new €65bn package of relief measures to soften the blow of soaring inflation and higher energy bills.

The new package brings the total cost of the aid measures Germany has enacted since Russia invaded Ukraine in February to €95bn — one of the largest support programmes in the developed world.

Speaking in Berlin on Sunday, German chancellor Olaf Scholz said the government would impose a cap on the profits of energy producers who generate electricity from wind, solar, biomass, coal and nuclear energy rather than gas.

Such companies were making “excessive” profits because the market price of electricity was determined by the price of gas. Proceeds from the tax would go towards an “electricity price brake”, allowing private households to enjoy a basic volume of electricity at reduced prices, he added.

“Germany stands together in a difficult time,” Scholz said. “No one will be left behind.”

Scholz’s government has come under pressure to help Germans concerned about the rising cost of living and the prospect of much higher gas bills this winter as Russia chokes off supplies.

Those concerns have intensified over the weekend as Russia indefinitely suspended shipments of gas to Europe through the crucial Nord Stream 1 pipeline that runs through the Baltic Sea to Germany.

Gazprom, the Kremlin-controlled gas exporter, said the suspension was because of a technical fault — a justification the German government has questioned.

Western governments have accused Moscow of “weaponising” its gas to drive up prices and punish Europe for its support of Ukraine. European gas prices stand at about €200 per megawatt hour — about 10 times the average level of the past decade.

Scholz said he was aware that “many Germans worry about their future, about the high price of electricity and gas, about the rising cost of living . . . We take all these concerns very, very seriously”.

Scholz’s measures were closely aligned with recommendations by the European Commission: Brussels is recommending member states levy a share of inflated profits generated by some electricity producers to fund support measures for households and companies. Scholz said if the EU did not implement these policies “in a timely manner”, Germany would go ahead and reform its national electricity market itself.

Scholz announced the measures after 18 hours of negotiations between the three parties in his coalition — his Social Democrats, the Greens and the liberal FDP.

He said the government would also make €1.5bn available for a continuation of the €9 ticket scheme, which allowed Germans to travel for just €9 a month on all local and regional public transport during the summer months. A national ticket priced at between €49 and €69 is currently under discussion.

The government also agreed to make one-time payments of €300 to pensioners to help them with energy costs — a measure it said would provide €6bn in total relief. Students will also be entitled to a one-off payment of €200 each. Child allowance will also be increased.

Scholz said the government would also expand the number of people eligible for housing allowance to 2mn, up from 640,000 currently, and provide recipients of such payments with a special grant to help with heating costs during this winter.

An aid scheme for energy-intensive companies to help with higher energy bills will be extended till the end of the year, the government said.

It also said it would postpone by a year a planned €5/tonne increase in the price of CO₂ that was due to come into force next January.

Former Russian president Dmitry Medvedev responded to Scholz’s remarks by saying that Germany was “acting as an enemy of Russia” by supporting sanctions against Moscow and supplying Ukraine with weapons.

“They have declared hybrid war against Russia,” Medvedev, now deputy chair of Russia’s security council, wrote on Telegram. “And this old man acts surprised that the Germans have some little problems with gas.”

Additional reporting by Max Seddon in Riga