Brussels green lights €5 billion in energy subsidies for German industry

Germany’s energy intensive industries, hard-hit by record prices and over-dependence on Russian gas, will receive €5 billion worth of subsidies after the EU’s competition authority gave its green light to the scheme.

Energy-intensive industries like steel and chemicals have buckled under high electricity and gas prices in recent months, leading to a downturn in production and fuelling worries about Germany’s competitiveness.

“This €5 billion scheme will enable Germany to mitigate the impact of the rising input costs on these companies and support the continuation of their activities in this difficult context,” explained EU competition chief Margrethe Vestager said on Thursday (14 July).

The scheme will see Berlin disburse direct grants to compensate additional costs incurred as a consequence of electricity and gas price spikes.

Critics have denounced the scheme for encouraging energy consumption by industry at a time of dwindling gas supplies, which could fall further in the coming weeks if Russia decides to cut deliveries via the Nord Stream 1 pipeline.

“The federal government’s strategic will-o’-the-wisp in one piece of news: green light for gas consumption subsidies for industry,” one said.

The German ministry of economy and climate action immediately stepped in to correct this during the absence of Vice-Chancellor Robert Habeck who is currently off with a COVID-19 infection.

“That is not right. It is precisely about preventing disincentives for more consumption,” the ministry said on Twitter.

Whether the subsidy criteria reflect this is questionable. Under the scheme, companies that spend at least 3% of their turnover on energy will be eligible to receive 30% of the price difference compared to 2021 prices. The subsidies will be capped at €2 million per company.

Some energy analysts were shocked by the scheme, saying it is a clear distortion of competition in favour of German industry. “This allows German companies to outcompete other Europeans over a limited amount of gas and sends money via higher prices to Russia!” said Georg Zachmann, an energy expert at Brussels think-tank Bruegel, in comments posted on Twitter.

Companies that suffered an operating loss in a given month due to rising energy costs can claim 50% of the price difference from the year before in the following month, with a cap set at €25 million. The subsidy will be limited to 80% of the losses incurred.

Special sectors, like the chemical industry, glassmakers, steelmakers and ceramics makers, will get even more subsidies. 70% of the price difference capped at €50 million will be given to these companies.

In order to avoid increased consumption during the subsidy period, the government highlights a provision in the scheme that limits the claimable amount to 80% of last year’s use.

On 20 July, the European Commission will present its “Save gas for a safe winter” plan, hoping to reduce industrial gas use to ensure sufficient supplies for next winter.


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