Changes to the Energy and Electricity Tax Acts: the German government plans to extend tax relief for natural gas
- Under the German cabinet’s current draft bill, tax advantages for natural gas are to be extended up to the end of the year 2026. From 2024, however, they will be reduced step by step. By contrast, tax advantages for liquefied natural gas (LNG) are due to expire at the end of 2018 as planned.
- It is expected that tighter tax rules that had been mooted for small-scale power generation installations as well as for electricity from renewable energy sources will not be introduced. When companies use energy they have generated themselves from renewable energies for their own consumption, this will remain tax-free.
Tax incentives for natural gas until 2026
The German government’s draft bill to amend the Energy Tax Act (Energiesteuergesetz) and Electricity Tax Act (Stromsteuergesetz) – as well as several modifications to further tax acts – does not come as a surprise. It implements a Resolution by the German parliament on 2 July 2015 (Bundestag printed paper 18/5378) requesting that the German government extend the relief on energy tax for natural and liquefied gas fuel.
The government is now responding to the parliament’s request, at least with regard to natural gas fuel. Pursuant to section 2(2) of the draft Energy Tax Act, the energy tax on one megawatt hour of natural gas and one megawatt hour of gaseous hydrocarbons will continue to be only EUR 13.90 rather than EUR 31.80 until 31 December 2023. The Act will therefore retain the tax relief of EUR 17.90. The tax concession granted will only be reduced step-by-step from 2024, and will finally expire at the end of 2026.
By contrast, the financial support for liquefied natural gas fuel (LPG) will not continue past the planned expiry date at the end of 2018. An Institute for Energy and Environmental Research (ifeu) study commissioned by the German Federal Ministry of Finance found that there was no need for such support. According to the study, liquefied natural gas fuel’s market share and filling station infrastructure are already at an advanced stage of development.
As part of several further tax reforms, the German government has also looked into continuing the tax concessions for smallscale power generation installations as well as for power from renewable energies. The tighter tax rules that were considered will not be introduced. Instead, it is expected that companies’ consumption of renewable energy they produce themselves will continue to be tax-free pursuant to section 26 of the draft Energy Tax Act. Pursuant to section 26(1) of the draft Act, however, the prerequisite for this is that the renewable energy is produced on the company premises and only used in
connection with energy production. Legal practice in this regard has thrown up the problem of how to establish the necessary “connection” in individual cases, and this issue will remain.
Transposing EU rules
In addition to the regulations on continuing tax advantages for natural gas and small-scale producers of renewable energy sources, the draft bill will also serve to transpose EU rules. In 2013 and 2014, State aid rules were reworded and in some cases radically revised, and these changes need to be transposed to national law.
As a general rule, most tax advantages provided for by the Energy Tax Act and Electricity Tax Act are treated as State aid within the meaning of Article 107 et seq. TFEU. Although many State aid measures fall under the reworded General Block Exemption Regulation (Allgemeine Gruppenfreistellungsverordnung) and do not need to be approved individually, the Requisite conditions for this have to be adopted into national law. This is one more goal of the amending statute.
The plan is for the legislative procedure to be completed by the summer recess and for the changes to enter into effect as of 1 January 2018.
Gleiss Lutz commentary
The draft amendment to the Energy Tax Act and Electricity Tax Act is a further interim step towards decarbonising the transport sector. Although financial support will concentrate on compressed and liquefied natural gas from 2019, while further support for liquefied natural gas is seen as being unnecessary, it is likely that this is only an evolutionary step towards completely decarbonised forms of propulsion. Overall, however, the draft bill makes a positive contribution in financial Support for natural gas mobility and will increase planning certainty in the industry. The scope in which this will further increase the market share of natural gas in the transport sector will only become clear in the future. The industry is in competition with other forms of propulsion, such as electromobility, that also receive state financial support.
Citation: Mayer/Wagner: Changes to the Energy and Electricity Tax Acts: the German government plans to extend tax relieffor natural gas, Gleiss Lutz Energy News #6/2017 as of 28 February 2017