How Germany is becoming less dependent on fossil fuels

In light of recent geopolitical tensions, petrol prices have risen dramatically in recent weeks. Calls for politicians to take measures to slow down this rise quickly became loud. From a higher commuter tax allowance to tax cuts on fuel and transfers to households, many proposals were under discussion.

A new policy brief by the Kopernikus project Ariadne, funded by the German Federal Ministry of Research, Technology and Space, looks at the effect of government relief measures such as tax cuts and transfer payments. It comes to the conclusion that such measures can act as insurance against energy crises. However, they reduce private-sector incentives to invest in domestic energy production, electromobility and heat pumps.

At the same time, the study sets out which measures can ease the burden on households and companies without favouring future crises. Dr Philipp M. Richter, research associate at the Junior Professorship of Quantitative International and Environmental Economics at the University of Würzburg, was involved in the preparation of the study.

Costs are passed on to the general public

During the last energy crisis in 2022/2023, the costs of government relief measures due to high natural gas prices amounted to between 55 and 187 billion euros. According to researchers from the Potsdam Institute for Climate Impact Research, the University of Potsdam, the ifo Institute and the University of Würzburg, the measures resembled an implicit state insurance policy. For an event that statistically occurs every 20 years, this would correspond to a permanent subsidy of 15 to 40 euros per tonne of_CO2 for natural gas and around 14 euros per tonne of_CO2 for fuels.

"Because households and companies can rely on the state to step in during crises, the costs of such price risks are passed on to the general public and not borne by the users of fossil fuels," explains Matthias Kalkuhl from the Potsdam Institute for Climate Impact Research, lead author of the policy brief.

As a result, import dependency and the risk of future crises are increasing: Germany currently imports fossil energy worth around 80 billion euros at an average import cost of two per cent of its gross domestic product. Imports account for 67 per cent of its primary energy consumption.

Lack of incentives to save energy cements the use of fossil fuels

Politicians basically have three options for reducing the burden:

1. general, debt-financed measures such as progressive tax cuts or transfer payments,

2. tax and duty reductions on fossil fuels and

3. lump-sum transfers to households.

The former can provide targeted relief for low- and middle-income households, but do not address actual energy consumption. Tax cuts on fossil fuels, on the other hand, relieve the burden on severely affected households, but in the worst case lead to overconsumption because the incentive to save fossil fuels is weakened. As a result, international sales prices for oil and gas rise and exporters, including Russia, generate additional income.

Compared to progressive transfers, flat-rate transfer payments can ensure that the amount is more closely aligned with the actual burden on households. However, they are associated with a considerable administrative burden. One example is the gas price brake from 2022/23, where the amount of the benefit was based on the previous year's consumption. However, this would be difficult to implement for fuel consumption in road transport, as it is not easy to monitor the previous year's consumption.

"Energy price reductions provide short-term relief, but are ultimately financed by taxpayers," explains Philipp M. Richter. "This reduces the private sector's incentive to invest in electric cars, heat pumps and domestic, renewable electricity production, which are less susceptible to international crises."

Combining relief measures with the polluter-pays principle

The Ariadne researchers therefore recommend combining relief measures with the promotion of fossil-free energy sources, for example by reducing the electricity tax. This makes electricity cheaper compared to fossil fuels and encourages the switch from gas heating to heat pumps.

General transfers such as the 2022 energy price lump sum can provide relief for low-income earners without intervening in pricing. The crisis risk therefore remains with households that continue to use fossil fuels. At the same time, the researchers are in favour of refinancing such relief after the crisis through higher levies on natural gas and oil. This would be combined with the polluter-pays principle and could bring about a long-term change in investments.

In their policy brief, the researchers make it clear that relief measures in the context of fossil fuel import dependency can only be effective if they provide the right incentives: namely to save fossil fuels and promote decarbonisation. However, households and companies can only experience sustainable relief if Germany becomes more independent in its energy supply through renewable energies.

Original publication

Matthias Kalkuhl, Timothé Beaufils, Ulrich Eydam, Maik Heinemann, Nikolaj Moretti, Andreas Peichl, Philipp M. Richter (2026): Targeted relief, reduce fossil import dependency. Kopernikus Project Ariadne, Potsdam. https://doi. org/10.48485/pik.2026.10

Contact

Dr Philipp Richter, University of Würzburg, T: +49 931 31-88648,  philipp.richter@uni-wuerzburg.de