Germany mulls new energy price subsidy for industries

The German government appears to be moving closer to adopting a new multibillion-euro subsidy scheme to compensate industries for high energy costs, although specifics on how such a plan would work and be financed remain murky.

Berlin is “working intensively” on a potential solution to conceive such an energy subsidy, Steffen Hebestreit, German Chancellor Olaf Scholz’s spokesman, told reporters on Friday. On Monday, a government spokesperson said that “different proposals” are “being examined and carefully weighed” as part of ongoing discussions between the chancellery and the economy and finance ministries.

Previously, the chancellery had ruled out such a subsidy scheme, partly because such a measure could well clash with EU rules that limit state aid for industry. But give Germany’s recent economic stagnation, the government has come under increasing pressure to fortify the county’s industrial backbone.

Economy Minister Robert Habeck has for months pushed for such an energy subsidy scheme, arguing that German industry faces five tough years before the transition to renewable energies bears fruit. The top Green politician has warned that, without state support, "we will no longer have industry," as companies would shift operations to countries like France or the U.S., where energy prices are much lower.

Chancellor Olaf Scholz had resisted Habeck’s spending push. But in an interview with Welt am Sonntag published Sunday, Scholz said he is no longer opposed to the plan. At the same time, he cautioned that his government must “weigh such an intervention in the market very carefully.”

The Commission recently warned that it will not continue to turn a blind eye toward subsidy schemes that distort market conditions and violate EU law. Brussels made exceptions to such rules after Russia’s invasion of Ukraine, but those exceptions will expire at the end of this year.

Yet senior German and French officials have told POLITICO that a potential deal could see both Paris and Berlin lobbying Brussels to make another exemption, as energy prices still remain higher than before the start of the war.

Andreas Rimkus, a lawmaker from Scholz’s Social Democratic Party who specializes in energy policy, told POLITICO that high electricity costs have “become a brake for the industrial transformation.” He urged Scholz to “move forward boldly now” with the energy price subsidy, and added: "International competition for business locations is in full swing, and the competition won’t wait."

One German proposal is to cut taxes for energy-intensive industries, while another possibility would be to use an existing price subsidy introduced a decade ago. That subsidy covers some of the costs industries face under the EU’s emission-trading system, but it could potentially be expanded.

The German plans are controversial as Berlin already introduced a massive €200 billion package last year to bring down energy prices for consumers and companies — although the extent to which big, energy-intensive industries can use that money is limited. Only about one-fourth of that money has been paid out.

Nevertheless, Germany accounted for a massive 53 percent of the EU’s overall €672 billion outlay on state subsidies last year. Any new energy subsidy would likely spark criticism that Germany is distorting competition on the EU market because it has the financial wherewithal to do so.