Germany to offer higher EV incentives, raise fuel prices to reduce CO2 emissions

Europe

The German government will offer incentives for electric cars and raise fuel prices as part of a green package aimed at cutting CO2 emissions.

The plan will make available incentives for electric vehicles costing less than 40,000 euros starting in 2023 while conventional cars will become costlier to operate, with higher taxes for more polluting vehicles. Gasoline and diesel prices will rise by 3 cents a liter.

Chancellor Angela Merkel has faced a series of protests this year demanding action to stem emissions, and the Green party has surged in the polls as the impact of global warming becomes increasingly tangible, with forests fires more frequent and droughts causing the Rhine river to recede.

The 54 billion euros ($60 billion) package’s other key initiatives include:

  • Air to Rail — Taxes will be increased for flights and decreased for rail tickets, and state rail operator Deutsche Bahn will get an extra 1 billion euros a year in capital to build up the country’s rail infrastructure and public transport.
  • Building Upgrades — The government will offer grants and tax rebates for installing new furnaces, windows and insulation and will ban new heating oil furnaces from 2026.

The deal between the government’s coalition partners was reached after more than 16 hours of overnight negotiations that began Thursday evening in Berlin.

Germany’s leaders were under pressure to seal a deal, with the country falling far short of its climate goals.

Tens of thousands of demonstrators gathered to march in Berlin, Hamburg, Munich and around 500 other locations across Germany as part of the Fridays for Future movement. Finance Minister Olaf Scholz said the demonstrations have been a “wake-up call.”

Merkel said Germany will continue to evaluate the program to ensure the country meets its targets to reduce carbon-dioxide emissions

“We have created numerous incentives, so that people can behave in a more environmentally responsible way,” said Merkel. “We believe we can reach these targets.”

Germany doesn’t expect the plan to require the government to raise more debt. The costs for incentives such as promoting electric vehicles and upgrading older furnaces will be balanced by income from carbon-dioxide certificates.

Bloomberg and Reuters contributed to this report

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