ETR in Germany, Continued: The Implementation

The first step of Germany’s ETR was to institute uniform taxation rates of road fuels and the consumption of heating oils. Electricity use was also re-taxed, as Germany had a previous ad valorem tax on electricity, with rates “differentiated between industry and households,” where the revenues “were earmarked for the subsidisation of the German coal industry,^[1] known as “Kohlepfennig.” Additionally, taxes on natural gas and light heating fuels were increased. It looked as follows:

Road Fuels:                 3.07 cents/liter

Heavy Heating Oils:   17.89 cents/ton; increase of 2.56 on existing heavy oil for heating tax, decrease of 10.23 on existing heavy oil for electricity generation tax

Electricity:                   1.02 cents/kWh

Light Heating Oils:     Increased 2.05 cents/liter; from 4.09 to 6.14 cents/liter

Natural Gas:                Increased 0.17 cents/kWh; from 0.18 to 0.35 cents/liter

No tax on the consumption of Coal

Germany Environmental Taxation Reform (ETR) History

Germany's interest in environmental tax reform was seen "as part of a more general overhaul of the tax system, [as] the German ETR was largely motivated to facilitate the allocation of production processes and demand towards technological innovation, and the creation of additional jobs.^[1]"  The German Institute for Economic Research (DIW) corroborated this by reporting in 1994 that “energy consumption and unemployment would considerable decrease and unemployment would considerably decrease,[2]” approximating that 600,000 new jobs would be created over 10 years. Moreover, they found that there would no significant negative effect on GDP growth or inflation.