German lawmakers from both chambers of parliament have agreed to a higher initial CO2 price for the housing and transport sectors of €25 per ton of CO2 emitted from 2021 on as part of a climate package recently presented by the government.

The price will then gradually rise to €55/ton of CO2 in 2025, and after that emissions allowance will be auctioned with a price corridor of €55-65/ton. Emissions in industry and the energy sector are already traded in the EU-wide emission trading system.

The government plans to use receipts from the new CO2 levy to lower power prices via a subsidy to a surcharge to finance renewable energy (EEG surcharge) German consumers have to pay on top of power prices.

The cabinet of Chancellor Angela Merkel in a first draft of its climate package approved in the cabinet in early October had suggested an initial CO2 price for housing and transport at a completely inefficient level of €10/ton of CO2 in 2021 that was supposed to gradually rise to €40/ton of CO2 in 2025.

But that proposal was blocked in Bundesrat – the upper house of parliament representing German states – by states in which the opposition Greens are part of the government, which said the proposed CO2 price was way too low. As a result, both chambers of parliament, the Bundesrat and the more powerful lower house, the Bundestag, had to find a compromise in the so-called mediation committee.

The energy sector was upbeat about the new and higher initial CO2 price, which could also help a faster build-up of renewable energies.

“This is a very good signal for climate protection and a ray of light after the disappointing results of the UN climate conference in Madrid,” said Kerstin Andreae, managing director of the federation of energy and water industries, BDEW.

“With this compromise the federal government and state governments show that they want to take serious steps in emission trading. The initial price of €25 per ton of CO2 in the transport and housing sector is in accordance to the certificate price in the European emission trade.”

The compromise in the mediation committee didn’t seem to mention a 1 kilometre distance rule between new wind projects and settlements the government had originally also included in the climate package.

The economics ministry at first had tried to push through the distance rule as part of a coal exit law, but in later drafts of that legislation scrapped the distance regulation.

Germany’s wind energy federation BWE now expects discussions on the distance rule may reappear in February in the wake of a planned amendment to Germany’s Renewable Energies Act (EEG), but it is unclear yet, whether the government will really follow through with it.