<b>Germany introduces natural gas surcharge! The annual cost of the six major industries increased by 5.3 billion euros</b>

On August 16, in order to cope with the impact of the continuous skyrocketing prices, Germany announced the introduction of natural gas surcharges from October. Economists worry that in the absence of effective relief measures, this move will not only significantly increase inflation in Germany, affect the purchasing power of residents, but also further reduce the competitiveness of German industry.

On Monday, Germany officially announced the long-discussed natural gas surcharge standard and start time, that is, from October 1st, natural gas users will be charged 2.419 euro cents per kWh, and can be adjusted every three months .

According to the new version of the "Energy Security Act" that came into effect on August 9, Germany will use the future natural gas surcharges to compensate German natural gas importers for the economic losses suffered due to the reduction in contracted imports. The country's largest importer of Russian natural gas, Uniper Energy, was bailed out.

Since mid-June, the natural gas imported into Germany by the German-Russian Nord Stream 1 Baltic Sea Pipeline has dropped significantly to 20% of the normal level. gas supply contract and was soon on the verge of bankruptcy.

For this reason, the German government urgently amended the relevant laws and established a legal framework to rescue crisis enterprises and transfer high energy procurement costs to all users, so as to prevent the serious economic and social risks caused by the massive shutdown of public utility enterprises.

Although the level of natural gas surcharge announced on Monday is lower than the middle line of the 1.5 to 5 euro cents/kWh plan previously disclosed by German officials, it has aroused concerns from all walks of life in Germany.

A year ago the average gas bill for a household with an annual gas consumption of 20,000 kWh was 1301 euros, or 6.5 cents per kWh, according to the German comparison portal Check24. The same household now has to pay an average of 3,415 euros for natural gas, which is equivalent to 17.1 cents per kWh (about 11.8 yuan/cubic meter), an increase of more than 162%. The new gas surcharge means such households could be charged a further 432 euros (including 19 percent VAT) per year on gas.

How much the additional burden on natural gas users will ultimately depend not only on the amount of the surcharge, but also on the policies of energy companies. For example, Rheinland Energy and Shell have announced that they will initially bear the natural gas surcharge by themselves.

However, many natural gas suppliers have raised prices more than once in the past year. Taking Rheinland Energy as an example, after the latest round of price adjustments, an average household that consumes 15,000 to 20,000 kWh per year will incur an additional cost of nearly 2,000 euros per year even if there is no surcharge.

Currently, about half of apartments in Germany use gas for heating, and one-third of enterprises use natural gas as their main energy source. Not only will average consumers face record gas bills in the coming winter, but businesses will also face tougher challenges.

The German Association of Energy-Intensive Industries issued a statement on Monday stating that companies in six major energy-intensive industries, including steel, chemicals and paper, must deal with a total of about 5.3 billion euros in new energy costs each year. On average, each job creates an additional burden of almost 6,300 euros. Previously, companies in these industries had incurred additional costs of billions of euros compared to the same period last year.

The steel industry will face additional energy costs of around 500 million euros per year, said Hans-Jürgen Kerchhoff, president of the German Steel Federation. Gas surcharges add to already significant cost pressures.

German chemicals giant Covestro expects its global energy costs to rise by as much as 2.2 billion euros in 2022, more than triple the amount in 2020, without gas surcharges. The new surcharge will bring an additional burden of at least three million euros per year. Covestro has warned that high energy costs endanger the competitiveness of the German economy.

Matthias Friedrichs, head of the German Federal Association for Building Materials, said the gas surcharge meant additional costs for the building materials, stone and earthmoving industries of around 375 million euros a year. He called on the federal government to create a relief mechanism to "stabilize industrial competitiveness".

Economists believe that in the absence of corresponding government relief measures, the new surcharge will sharply increase inflation in Germany again and further limit already shrinking purchasing power.

Calculations by the German Institute for Macroeconomics and Business Cycles show that inflation in Germany would be 0.8 to 1 percentage point higher due to the surcharge. This depends on the question of whether the surcharge is subject to VAT.

It is understood that the German Federal Ministry of Finance has submitted an exemption request to the European Commission so that Germany can exempt the value-added tax of the gas surcharge. The federal government has also promised that if the tax exemption is unsuccessful, it will establish a compensation mechanism to return the money to citizens.

Inflation in Germany fell slightly to 7.5% in July. The drop was largely due to a €9 discount on transport passes and fuel, but the aforementioned government relief measures are expected to expire at the end of August. Experts believe that if no new measures are introduced by then, the German inflation rate will pick up significantly, and the superimposed effect together with the natural gas surcharge may push the inflation rate up to 10%.

According to the calculation of the Kiel Institute for the World Economy, by 2023, theThe gas surcharge will take away a total of 8 billion euros of purchasing power from German private households. Equivalent to 0.4% of total disposable income.

The collection of surcharges will continue until April 2024, which means that the total amount of economic compensation proposed by companies is expected to be equivalent to 34 billion euros. 90% of the difference between the price agreed in the importer's natural gas supply contract before May 1 this year and the exchange's current wholesale price is considered an economic loss that can be compensated with a natural gas surcharge. A total of 12 natural gas importers have requested compensation.

It is worth noting that European gas prices are still rising rapidly. On Monday, the price of the main natural gas futures contract on the Dutch TTF exchange soared to 229 euros per megawatt hour, setting a new record high. Compared with mid-June, it has increased by nearly 173%, which is nearly 8 times that of the same period last year.

Considering possible gas shortages in winter, there is still a risk that the surcharge will be raised further or the levy period will be extended.

In order to help people cope with the impact of the sharp rise in natural gas prices, the German Federal Ministry of Finance has proposed new measures including permanent subsidies for heating costs for low-income families, increased unemployment benefits and tax relief programs. A round of government relief measures, but the ruling parties have still failed to reach an agreement on this, with the tariff plan facing the most controversy.

Additionally, a policy of price caps based on underlying natural gas consumption and expanded corporate relief are also under discussion. The SPD even proposes direct monthly payments to recipients of basic security and housing benefits.

Source of article: Xinhua Finance