Germany Extends Tax Breaks for Natural Gas Production

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By Jabeen Bhatti

A plan to extend significant tax breaks for production of both natural gas and liquefied petroleum gas through 2023 was approved July 7 by German lawmakers, who deemed the measure deemed necessary for the country’s problematic transportation sector.

The upper house of the German Parliament, the Bundesrat, passed the Second Law to Amend the Energy and Electricity Tax, which extends tax breaks for both liquefied and compressed natural gas, as well as liquefied petroleum gas, that would have otherwise ended Jan. 1, 2019.

Now, the 56 percent break on energy taxes on all types of natural gas will continue through Dec. 31, 2023, with deductions gradually being reduced each year thereafter until 2026, according to the bill.

The 56 percent tax reduction for liquefied petroleum gas also has been extended. Tax reductions for this type of gas, however, will gradually decrease beginning in 2019 and this type of fuel will be subject to full taxation beginning in 2023.

The German president must sign off on the bill before it becomes law, usually a pro forma procedure.

’Clear Advantages’

Lengthening this tax scheme provides the natural gas industry with the market stability it needs to replace dirtier gasoline, industry representatives told Bloomberg BNA.

“There are clear advantages for the environment,” Michael Oppermann, a spokesman for Zukunft ERDGAS, a natural gas industry association, told Bloomberg BNA. “Natural gas burns with much lower emissions due to its natural composition.”

Natural gas vehicles emit 95 percent less nitrogen oxide and 23 percent less carbon dioxide than diesel vehicles, which could help to combat persistent environmental issues in Germany’s transportation sector, Oppermann added.

“These distinctive environmental advantages could provide immediate relief to many large German cities with air laden with nitrogen oxide and find-dust particles,” he said.

Small Impact

Natural gas vehicles, however, comprise only a fraction of the auto market in Germany—about 100,000 vehicles compared to more than 45 million cars on national roads overall, according to information provided to Bloomberg BNA by Green Budget Germany, a Berlin-based environmental advocacy group.

With gasoline and diesel still dominating the market—making up 65.5 and 32.9 percent of all personal vehicles in Germany respectively, according to the Federal Office of Motor Vehicles—it is unlikely that the extension of tax breaks on natural gas will have significant impact on the market or the environment, analysts told Bloomberg BNA.

“I think it unlikely that we’ll see a large increase of use in natural gas, especially for personal vehicles,” said Alexander Mahler, director of transportation and agricultural policy at advocacy organization Green Budget Germany.

Thinking Ahead

Providing a leg up for natural gas vehicles could mean that natural gas will become a clean bridging fuel for the sector while renewable technologies find their footing, especially considering current biogas fueling stations can be easily converted to service natural gas vehicles, energy analysts said.

“Natural gas is the bridge,” said Sarah Rieseberg, an energy policy project manager with Arepo Consult, a private environmental policy consultancy firm in Berlin, told Bloomberg BNA. “It’s one of the few viable solutions. You would use the same natural gas infrastructure with renewable methane, and the same petrol station and the same cars.”

To contact the reporter on this story: Jabeen Bhatti in Berlin at correspondents@bna.com

To contact the editor responsible for this story: Greg Henderson at ghenderson@bna.com

For More Information

The Second Law to Amend the Energy and Electricity Tax Laws is available, in German, at http://dip21.bundestag.de/dip21/btd/18/114/1811493.pdf.

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