The German government is laying down the foundation for a new multi-billion-euro subsidy scheme to prevent companies from leaving the country due to high electricity prices, despite such programs being an important redline for the EU for distorting the internal market, Politico reported on Monday, September 18th.
The news came directly from Chancellor Olaf Scholz’s office, who was against further energy subsidies until recently but has been experiencing heavy pressure from his Socialist Party (SPD) and regional governments of 16 German states.
According to Scholz’s spokesman Steffen Hebestreit, the chancellery, the economy, and the finance ministry are “working intensively” to find ways to finance and introduce the next energy subsidy scheme. There’s no single plan in motion just yet, but several proposals are “now being considered in detail,” Hebestreit added while talking to reporters.
Chancellor Scholz himself confirmed the subsidy plan in a recent interview with Welt am Sonntag, saying that he doesn’t oppose it but his government must “weigh such an intervention in the market very carefully.”
The reason for Scholz’s initial reluctance to back another subsidy plan is that it would put Berlin on a direct collision course with Brussels as soon as it entered into force, as such schemes are viewed by the EU as distorting the single market by giving an unfair advantage to the industries of large countries within the bloc.
Many EU countries, including Germany and France, have put energy subsidy schemes in place to protect their industry after the war in Ukraine drove up the electricity prices, while Brussels—given the circumstances—turned a blind eye by creating a temporary exemption framework, which is set to expire at the end of this year.
In 2022, EU member states approved over €670 billion worth of subsidies for their companies—over half of which was in Germany alone, while France contributed a further quarter to the total—in fear of losing competitiveness to each other as well as to third countries, like the U.S. or China.
At the end of August, the European Commission sent out a survey to every European capital. Officially, it was presented as a consultation to evaluate their experiences with energy subsidies and the broader crisis. Unofficially, of course, it served the purpose of reminding everyone to get ready to outphase every remaining scheme in the coming months, as was initially officially agreed on.
The Commission even made it clear that the survey would “seek confirmation that the specific energy measures” of the Temporary Crisis and Transition Framework—which allowed member states to run national subsidies—“are no longer needed in their current form beyond 31 December 2023.” In other words, no more national electricity or gas subsidies for European companies.
Now, it appears Berlin has no intention of heeding that warning at all. However, it might not even have a chance as the German electricity prices are still three times that of the U.S., and almost double what companies pay in France or Poland. That is why Economy Minister Robert Habeck has been lobbying for newer subsidies to stop German firms from relocating to neighboring countries or outside the EU.
According to Politico, both German and French officials are considering joining efforts for a lobbying campaign in Brussels to ask for further exemptions under a new instrument, but many in Berlin would rather refrain from such a deal since it would benefit France too, further increasing the difference between the two countries’ prices.
One of the possible solutions Berlin is considering right now is to reuse a decade-old subsidy scheme that compensates the most energy-intensive companies for lost profit due to the EU’s low-emission rules to disincentivize them from leaving.
Extending this framework to include those affected by the current energy crisis due to the war would also—quite conveniently—allow the government, with no more excess spending, to tap the country’s €178 billion special fund for green transition to finance the scheme.
The Finance Ministry, however, refused to say whether it would endorse such a plan, and even said it was unaware that it existed.
