Germany: from 1 January 2021, a national CO₂ price for heating and transport fuels

From 1 January 2021, Germany has had a national emissions trading system for fuels used in heating and transport, regulated by the BEHG act. In the first year the price of one allowance is fixed at EUR 25 per tonne of CO₂, and in the following years it is to rise gradually – to EUR 55 in 2025. For biomethane and biogas producers this is a new market factor, because the charge falls on fossil fuels, including natural gas.

How the system works

The German system is not the EU ETS, which covers energy and industry. It complements it in sectors that have not so far been subject to a charge for emissions: building heating and transport. The obligation to buy allowances rests on entities placing fuels on the market (e.g. suppliers of gas, heating oil, petrol and diesel), which pass the cost on to customers.

The fixed price in the first years is meant to provide predictability for households and businesses. After the last adjustment before entry into force, it was set at EUR 25 in 2021, and the path includes EUR 30 in 2022, EUR 35 in 2023, EUR 45 in 2024 and EUR 55 in 2025. From 2026, auctions within a price corridor are foreseen.

What this means for biogas and biomethane

In the system, fuels from biomass that meet sustainability criteria are treated preferentially, because biogenic emissions are not subject to the charge on the same terms as emissions from fossil fuels. With a rising CO₂ price, biomethane gains a cost advantage over natural gas, especially in heating and transport. This strengthens demand for biomethane in Germany, the largest biogas market in Europe.

For producers from other countries, including Poland, this is a signal that rising emission prices in the neighbouring country increase the value of green gas, provided that the sustainability criteria and certification requirement are met.

Comparison with the EU approach

The German system was one of the first national mechanisms covering buildings and transport. At the time, the European Commission was analysing the possibility of extending the EU ETS or creating a separate system for these sectors, which was to be included in the legislative package announced for 2021. National solutions were a source of experience for Brussels.

What next

For end users it will be important how the rise in charges affects heating and fuel bills. For the biogas industry – whether rising fossil fuel costs translate into biomethane prices and into investment decisions on biogas upgrading.

Conclusions for consumers

For households heated with gas, the charge means an increase in bills, which will grow with the allowance price. For industrial companies, mechanisms limiting the risk of carbon leakage are important. From the perspective of agriculture, it matters that higher fossil fuel prices improve the profitability of heat from biogas plants and from local district heating networks supplied with biogas.