Germany: 168. Launch of Ecological Taxation in Germany

Last Updated: 2 June 1999
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website

For disclaimer and copyright see end of this article.

As its name indicates, the Law Taking Initial Steps Towards Ecological Tax Reform (Gesetz zum Einstieg in die oekologische Steuerreform) involves more than just an increase in existing excise taxes on energy and, as regards electricity, the introduction of a new one. In the eyes of its proponents, this legislation is the act by which Germany embarks upon an ambitious program of "ecological taxation".

According to estimates released by the Federal Ministry of Finance in March 1999, the measures which went into effect on 1 April 1999 are supposed to generate revenue of around EURO 5.78 billion (about US-$ 6.18 billion) by the end of the year. This will be used to reduce the statutory pension insurance contribution (social security contribution) from 20.3 % of wages to 19.5 %. Revenue from the new taxes will also finance a program for the promotion of alternative sources of energy. Two further energy tax increases are planned, each of similar proportions, which would put total annual energy tax revenue at around EURO 17.33 billion (about US-$ 18.50 billion).

The use of general tax revenue to finance social benefits previously paid for out of employer and employee contributions is in itself noteworthy.

1. Ecological taxation: basic concept and goals

The Coalition Agreement signed in October 1998 between the Social Democrats and the Greens, the parties currently in office, describes ecological tax reform as a series of scheduled and therefore calculable increases in the taxation of energy consumption to create market incentives for technologically advanced energy-saving products and for energy-conscious consumer behaviour. The proceeds of the "ecological" taxes are earmarked almost entirely for return to taxpayers in the form of reductions in Germany's high social charges, which are borne half each by employer and employee. In theory at least, the new taxes thus do not increase the overall net tax burden. Rather, they shift part of this burden from employers and employees to energy users.

Almost all members of a society are direct consumers of energy, either for business purposes in factories and in office buildings or for personal purposes in private households, as users of public and private means of transportation, and as purchasers of products, the manufacture of which requires the expenditure of energy. Energy taxes are therefore borne by all, though not to an equal degree. The social charges which they replace were, however, borne only by employers and employees, a decidedly smaller set or persons. It is hoped that, by reducing the direct cost of labour, energy taxes will contribute to reduction of the unemployment rate.

Successive pre-announced increases in energy taxes over time are an important aspect of ecological taxation. It is hoped that industry and consumers will change their behaviour so as to use significantly less energy, thus enabling the current government to meet its goal of reducing CO2 emissions by 25 % compared with consumption in 1990 by the year 2005.

Predictable increases in energy taxes are intended to allow industry to plan and implement measures to reduce its energy consumption and therefore its tax bill. To the extent that capital spending for energy reduction is cheaper than paying the incremental tax falling on avoidable energy consumption, businesses are supposed to maximise their after tax profits by reducing their energy use and hence energy taxes. On the other hand, steadily increasing energy tax rates are also supposed to prevent erosion of the energy tax base and make the tax a reliable source of revenue.

The taxes are structured to fall essentially on nuclear energy and fossil fuels and hence favour the development of renewable sources of energy. There are also tax breaks for public transportation.

It is also hoped that increased costs of energy will provide impetus for the development of new energy-saving technologies and products, thereby giving Germany a competitive advantage in an area which proponents of the taxes hope will attain worldwide economic importance in the 21st century, e.g. because of global warming or other deleterious ecological consequences of energy generation.

2. Doubts surrounding ecological taxation

Many doubts surround "ecological" energy taxation. From the point of view of tax theory, it remains to be seen whether a tax which taxpayers are supposed to avoid (by reducing their energy consumption) can be made a reliable source of revenue. An even bigger question mark is the feasibility of such a tax on a national or even an EU scale in a world of global competition. Because of these considerations, the proportions of the new energy taxes are modest, so much so that nobody expects them to have much ecological impact in and of themselves. Numerous exceptions for manufacturing industries contained in the initial measures also cast doubt on the efficacy of the taxes as a whole, and it is anything but clear whether the complicated new electricity tax in particular is administrable as a practical matter.

Two further energy price increases are contemplated for the next three years to reduce social charges by another 1.6 percentage points. According to the Coalition Agreement, details should be announced around the middle of 1999. It is, however, unclear whether the current administration views further ecological taxes as contingent upon some measure of EU harmonisation of taxes on energy and, if so, whether this can be achieved.

3. Overview of the energy tax increases

In general, the following tax increases took effect on 1 April 1999) (EURO 1 = US-$ 1.07):

Energy source

Taxation in Germany

Tax Increase






Petrol (gasoline)




per litre

Light heating oil




per litre

Natural gas (for heating)




per kwh

Electric current




per kwh

The tax increase for petrol also applies to diesel, natural gas, and liquid gas used to power vehicles. The increase for light heating oil also applies to liquid gas used to generate heat. The increase for natural gas used for heating (and cooking) also applies to light oils and medium-weight oils used to produce gas for such purposes.

The tax on electricity constitutes a completely new excise tax governed by the newly legislated Electric Current Tax Law (Stromsteuergesetz).

Otherwise, the new legislation merely increases existing excise taxes. The magnitude of these increases compared with the previously existing excise taxes varies greatly depending on the particular fuel involved. While the excise tax on lead-free petrol has risen by a modest 6 % (from DM 0.98 per litre to DM 1.04 per litre), that on light heating oil has jumped by 50 % (from DM 0.08 per litre to DM 0.12 per litre).

The new law makes no changes as regards aeroplane fuel (kerosene), which is, as before, not subject to excise tax.

4. Details of the tax on electric current

4.1 Accrual and payment of the tax

The tax on electric current accrues when electricity is withdrawn from the electricity network by a final consumer, self-generator, or supplier of electricity. The tax also accrues when electric current is withdrawn illegally.

The person liable for the tax is the supplier or, where electricity is used by the person who generated it, the generator (so-called "self-generator").

The following persons are required to have a license:

  • German resident suppliers of electric current desiring to supply electricity to final consumers located in Germany;
  • self-generators of electric current desiring to use electricity for their own purposes; and
  • final consumers of electricity desiring to purchase electricity from sources outside of Germany.

Licenses are issued by the Main Customs Offices (Hauptzollaemter) upon request by persons who have a proper commercial accounting system, prepare annual financial statements, and may be relied on to remit the tax. If compliance appears doubtful, a pre-payment equivalent to two months' estimated tax liability may be required. The license is deemed to have been issued for the period through 31 December 1999.

There are presently indications that the tax authorities may have underestimated the number of final consumers purchasing electricity from foreign (particularly Swiss) sources, which may lead to modifications in this area.

Furthermore, the determination whether electricity is purchased from foreign sources will probably be made with respect to the seller's location, not the point of generation and path of transmission of the electric current as a factual matter (invoice path, not energy transmission path). This may have anomalous consequences when German electricity is purchased by German consumers through, for instance, the Amsterdam electricity exchange.

The persons liable for the tax must file returns on a monthly or an annual basis in which they themselves calculate the tax owing and remit it with the return. Those electing annual filing must pay monthly prepayments assessed by the Main Customs Office.

Tax on electricity received by a final consumer from sources outside of Germany accrues when the final consumer withdraws the current from the electricity network. The final consumer is himself liable for the tax. Details concerning tax collection from such final consumers are not yet available.

4.2 Tax rate and exemptions

The tax rate is DM 0.02 per kilowatt hour or DM 20.00 per megawatt hour (EURO 10.23 = US-$ 10.94 per megawatt hour).

Electric current is exempt from tax in the following cases:

1. If it is generated using renewable sources of energy and is withdrawn from the electricity network by

  • self-generators for their own final consumption or
  • final consumers from an electricity network or line carrying electricity generated using only renewable sources of energy.


2. If it is withdrawn from the network by a final consumer for the purpose of generating electric energy.

Electricity is considered generated using renewable sources of energy if generated exclusively using hydraulic, aeolian, solar, or geothermal power or by means of waste dump gas, purification treatment gas, or bio-mass. Electricity generated using hydraulic power, waste dump gas, purification treatment gas, or bio-mass is, however, no longer deemed to come from renewable sources of energy if the installed generator capacity of such facilities exceeds 5 megawatts.

The exemption for electricity generated using renewable sources of energy may remain a theoretical matter as long as there are no electricity networks or lines carrying electricity generated using only renewable sources of energy, which presently appears to be the case.

To qualify for the exemption, the final consumer must have authorisation from the Main Customs Office. This is not deemed to have been automatically issued for the period through the end of 1999 and must accordingly be applied for immediately. The tax authorities will, however, apparently issue such licenses retroactive to 1 April 1999 if the licensee so requests in its application.

4.3 Reduced tax rates

There are two reduced tax rates of DM 10.00 and DM 4.00 per megawatt hour.

Rate of DM 10.00 per mwhr

This rate applies in the following cases:

1. For the operation of electric overnight energy storage heaters (Nachtspeicheroefen), installed prior to 1 April 1999; and

2. For mountain railways and rail transport traffic, excluding traffic inside private plant grounds, and for bus traffic using electric overhead lines.

Rate of DM 4.00 per mwhr

The reduced rate of DM 4.00 per mwhr applies to electricity in excess of 50 megawatt hours per calendar year withdrawn from a network for business purposes by a producing commercial enterprise (Unternehmen des produzierenden Gewerbes) or an agricultural or forestry enterprise as final consumer of the electricity.

The following are considered to be producing commercial enterprises: mining companies, manufacturing companies, construction companies, and electricity, gas, remote source heat, and water utility companies if classifiable in one of these industries under the industry classifications of the Federal Office of Statistics.

An enterprise is considered to be an agriculture or forestry enterprise if classifiable as one of these industries under Section A of the industry classifications of the Federal Office of Statistics.

Except as regards the operation of electric overnight energy storage heaters, the reduced tax rates are conditional on authorisation from the Main Customs Office. This is not deemed to have been automatically issued for the period through the end of 1999 and must accordingly be applied for immediately. Here again, the tax authorities are apparently prepared to issue such licenses retroactive to 1 April 1999 if the licensee so requests in its application.

4.4 Abatement and refund of tax

The new law contains a provision intended to ensure that the increase in taxes on producing commercial enterprises as a result of the tax on electric current is not substantially disproportionate to the tax relief afforded them by the reduction in social charges (see sec. 1 above).

Electricity tax in excess of DM 1,000 (EURO 511 = US-$ 547) potentially qualifies for abatement or refund if owing or paid by a producing commercial enterprise as a user of self-generated electricity or a final consumer of electricity supplied by another. The amount of the abatement or refund is limited, however, to the excess of electricity tax for the calendar year over 1.2 times the amount by which the taxpayer's employer contribution to the statutory pension system for the same period in the year 1998 would have been reduced if the reduced contribution rate in force as of 1 April 1999 had been in force in 1998.

5. Details of the tax increases on fuels

The tax increases on petrol, heating oil, natural gas, etc. are all contained in the mineral oil tax law (Mineraloelsteuergesetz).

5.1 Supplemental taxation of "old" mineral oils

Mineral oils (including petrol) for which tax has already been paid at the rates in force through 31 March 1999 are generally subject to a supplemental tax to bring the excise tax on such fuels up to the new levels. The person in possession of such oils on 1 April 1999 is liable for the tax.

Exemptions from the supplemental tax apply in the following cases:

  • For oils in engines including the engine's main and reserve tank; and
  • For oils in the direct possession of final consumers, provided they are stored in facilities for self-supply with fuels or in the tanks of heating facilities.

A final consumer is a person who has procured the oils for his own use and for supply to dependants, association members, or his own employees and who does not supply the oils commercially to third parties.

5.2 Tax reductions

There are tax reductions in various amounts for certain fuels (e.g. heating oil) shown to have been taxed at the rates in effect from 1 April 1999 onwards (or subjected to the supplemental tax). The reduced rates are available to producing commercial enterprises, agriculture and forestry enterprises, and non-producing commercial enterprises provided they use the fuel for certain qualifying purposes (indirect or direct heating, production of certain gases, driving certain gas turbines or combustion engines in stationary facilities, or simultaneous generation of electric power and heat). The reduced rates also apply to other companies using the fuels to generate heat for purposes of generating electricity or for simultaneous generation of electric power and heat or in other types of facilities for simultaneous generation of electric power and heat.

Again, authorisation is required to qualify for the reduced rates. However, until further notice the authorisation is deemed to have been granted to all taxpayers.

5.3 Abatement or refund of tax

The tax on certain types of oil and for natural gas, liquid gas, and other gaseous hydrocarbons shown to have been taxed at the rates which took effect on 1 April 1999 can be partially abated or refunded on request by a producing commercial enterprise which uses the fuels for qualifying purposes (direct or indirect heating, production of certain gases, driving certain gas turbines or combustion engines in stationary facilities).

The abatement or refund is limited to the excess tax paid as a result of the new tax rates. In certain cases, it is not possible to obtain complete abatement or refund of the tax increase under this provision, however.

Abatement or refund can also be requested by a producing commercial enterprise using fuels for which tax increases went into effect on 1 April 1999 for certain purposes if the excess tax resulting from the fuel tax increases plus the excess tax resulting from the new tax on electric current exceeds the deemed tax savings by reason of the reductions in employer social security contributions by a factor of more than 1.2. As for the similar provision in the tax on electric current (see sec. 4.4 above), tax is refundable to the extent it exceeds DM 1,000 and 1.2 times the tax savings which would have resulted if the reduced rate for employer social security contributions which went into effect with the energy tax increases on 1 April 1999 had been in effect in the corresponding period in the year 1998.

6. Conclusion

The coalition government of Social Democrats and Greens which took office in October of 1998 has enacted energy taxes with ambitious objectives as regards both ecology and unemployment. While the dimensions of the new measures are significant, they are not in themselves expected to produce dramatic results. Proponents claim no more than that they represent a turning point down a new road to ecological taxation, not that they move Germany very far down this new road.

Whether the theoretical premises of ecological energy taxes are sound is intensely controversial. Even admitting this to be the case, grave doubts would exist whether successful implementation of such taxes is possible on a merely national scale. Two further phases of energy tax increases are under discussion. While significant, they also are not radical, and their ultimate implementation is speculative.

Reductions in social security contributions have gone into effect at the same time as the energy tax increases, which contain provisions to keep the burden of the new taxes in approximate balance with the benefits of the reductions in employer contributions to social security for manufacturing industries. There are also numerous exceptions and reduced rates associated with the new energy taxes, again intended to avoid excessive burden on manufacturing industries. Whether the new measures will function smoothly as a purely mechanical matter is unclear, particularly with respect to the completely new and hence untried tax on electric current.

Disclaimer and Copyright

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.