National Emissions Trading System: Background Paper

Why do we need national emissions trading?

In view of the major challenge that climate change poses to present and future generations due to greenhouse gas emissions, Germany has committed itself to ambitious climate protection targets at the European level under the Paris Convention. These climate protection goals were legally anchored in Germany for the first time with the Federal Climate Change Act, which came into force on 18/12/2019, in order to limit the rise in the global average temperature to well below 2 degrees Celsius and, if possible, to 1.5 degrees Celsius compared to pre-industrial levels. The Federal Republic of Germany also aims to be greenhouse gas neutral by 2050.

To actually achieve this climate protection goal, climate protection measures must be taken. The Federal Government has done this with the Climate Protection Programme 2030. The CO2 pricing of emissions is a key climate protection instrument, particularly in the fields of heating and transport, which came into force with the national emissions trading scheme and the Fuel Emissions Trading Act (BEHG) on 20/12/2019. Based on the BEHG, a national emissions trading scheme (in German “nationales Emissionshandelssystem” –hereinafter referred to by the abbreviation nEHS will be introduced in Germany from 2021.

The EU emissions trading scheme (EU ETS) already largely covers emissions from industry and power generation in Germany: operators have had to surrender an emission allowance for every tonne of CO2 emitted since 2005. This scheme includes emission-intensive installations of both the energy sector and industry. However, Germany has so far lacked a financial incentive to reduce emissions outside the field covered by the EU ETS.

The nEHS now basically includes all CO2-causing fuels put on the market, especially petrol, diesel, heating oil, liquified gas, natural gas and coal. However, companies or citizens who use these fuels for heating or driving, for example, do not have to participate in the nEHS themselves. Only the ‘distributors’ of fuels1 such as gas suppliers or companies in the mineral oil industry who are obliged to pay energy tax under the Energy Tax Act, have to do so. If the fuel distributors pass on the costs from the nEHS to their customers, they provide the desired financial incentive to reduce emissions. It is BEHG’s intention that the pricing of fuel emissions should result in a cost and make customers change their behaviour and reduce emissions.

The German Emissions Trading Authority (DEHSt) at the German Environment Agency is responsible for the implementation of the nEHS. DEHSt has been implementing the EU ETS in Germany since 2005. Together with the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) DEHSt is currently preparing the implementation of the BEHG in terms of organisation and expertise.

Read the full paper here.