The cabinet of German Chancellor Angela Merkel has approved an initial CO2 price for the housing and transport sectors of €25 ($27) per ton of CO2 emitted from 2021 on, as well as a regulation that will result in a lower renewable surcharge for power consumers.

The government originally had planned to kick off the national emission trading for sectors not already covered under an EU-wide scheme with an initial price of only €10/ton of CO2. But that proposal was blocked as too low in the Bundesrat, Germany’s upper house of parliament, in which the Green Party has a considerable influence.

A mediation committee between the Bundesrat and the Bundestag, the lower house of parliament, came up with the higher initial level of €25/ton of CO2, which the cabinet is now adhering to. Long-distance commuters will get a rebate to compensate for higher gasoline or diesel costs.

“Today’s decisions shows that it is possible to bring together climate protection and social justice,” environment minister Svenja Schulze said.

“The higher CO2 price makes fossil fuels more expensive and brings us closer to our climate targets. We will use the additional revenue from the national emission trading entirely to relieve housholds and companies via the electricity bill.”

The CO2 price will gradually rise to a corridor of €55-65/ton of CO2 in 2026.

The cabinet also plans to change regulation for renewable energies in order to be allowed to use the revenue from the sale of CO2 emission rights to lower a surcharge to finance renewable energies (EEG surcharge).

So far, the EEG surcharge is slapped entirely on top of electricity bills for consumers.

“This is good news for citizens and for the economy. So far, the end consumers were financing the entire support costs of the EEG (Renewable Energy Act) via the power price component of the EEG surcharge,” economics and energy minister Peter Altmaier said.

“In the future, we will unburden the EEG surcharge with means from the budget, and thus also spare consumer wallets.”

It is not clear yet by how much the EEG surcharge will go down through the measures. Germany’s transmission system operators on Oct. 15 are slated to announce the price for the EEG surcharge to be paid next year.