Exploding electricity costs in Germany: real relief is needed

_ Yuri Kofner, economist, MIWI Institute. Commentary for the Austrian newspaper “Die Tagesstimme”. Munich – Graz, September 21, 2022.

Apart from the impending power shortage, the failed energy policy of the German federal government has led to an explosion in electricity bills, which are extremely burdensome for both citizens and companies.

From the end of 2021 to July 2022, household electricity prices have increased by 16 percent from 32.16 to 37.30 cents per KWh, while industrial electricity prices have increased by 87 percent from 21.38 to 40.05 cents per KWh are shot. Due to the energy transition, electricity prices have doubled for households and tripled for industry in the last two decades: from 14 to 31.4 cents per KWh and from 6 to 18.6 cents per KWh. This means that Germany now has the highest electricity prices in the world.

Under the motto “Hot autumn instead of cold feet”, the AfD has therefore called for peaceful protests against the exploding energy prices.

How to solve the energy crisis

But the AfD not only criticizes the ruling establishment, the blue party’s anti-inflation program also envisages a whole bundle of measures in the energy sector. Apart from measures that are more long-term in implementation, such as the conscious return to coal-fired power generation and nuclear power, as well as measures that are politically more difficult to implement, such as negotiations with Russia about secured gas supplies through Nord Stream I and II, this package also includes tax relief measures with immediate price effects.

These demands include the abolition of the CO2 tax, the non-introduction of the gas levy, and the reduction of electricity tax, energy taxes and value added tax on electricity to the EU minimum. Using data from the BDEW, the MIWI Institute calculated how much lower the average electricity bill would be in October 2022 if, magically, the AfD instead of the traffic light coalition led the government, and how much that would cost a blue federal government.

With the abolition of the CO2 surcharge, the production costs of lignite-based power generation, which accounts for 20 percent of the electricity mix, would be 63 percent (!) lower, hard coal-based power generation by 36 percent and gas-fired power generation would still be 14.3 percent lower, with the latter each make up around 10 percent of the German electricity mix.

Less burden for the taxpayer

This alone would reduce the procurement and operating costs for electricity by 20 percent. Finally, the reduction in electricity tax and VAT would reduce electricity costs for households by 26 percent or around 10 cents to 27.64 cents per KWh and for industry by 22 percent or around 9 cents to 31.2 cents per KWh.

This tax relief measure would mean that the state would have to forego tax revenue of around EUR 55.7 billion. On the other hand, the annual electricity bill for an average 2-person household would be 309 euros lower and a family of 3 would be 475 euros lower. Household electricity would be cheaper than it has been since 2012.

But since the electricity prices for domestic industry would still be quite high despite the tax cut, an AfD government might have to think about introducing a price cap, as France, Belgium and other European countries have already done. Based on last year’s average price of 21.38 cents per kWh, this would further reduce the electricity bill for industry by 31.5 percent, but would cost the state a further 22.2 billion euros.

In principle, both amounts could be financed without new debt, since the savings potential of the federal budget for 2023 for unnecessary ideological projects such as climate, asylum and gender gaga is around 89 billion euros.

Source: Die Tagesstimme

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