Interview with economist Weber: “Gas price cap is the much better solution”

Interview with economist Weber
“Gas price cap is the much better solution”

The announced reduction in VAT on gas consumption has not met with much approval from economists. The measure is socially unfair, says Isabella Weber ntv.de: “Consumers who cannot cope with the high gas prices must be relieved.”

ntv.de: The federal government is reducing VAT on gas consumption. What do you think of this step?

Isabella Weber: With the reduction in VAT, part of the gas surcharge will be recovered. This means that citizens are first burdened and then partially relieved. The problem of far too high gas prices, which hits low-income households in particular extremely hard, remains, even if the reduction in VAT gives the impression of a relief. There is still an urgent need to shield basic household consumption from geopolitical price explosions.

Millions of households have to adjust to heavy heating bills. How can you help them?

Isabella Weber is an Assistant Professor at the University of Massachusetts Amherst.

There is a much better solution than the reduction in VAT, which partially relieves everyone with the watering can. The gas price cap for basic consumption puts up a protective shield where savings cannot be made – with the basic needs of a minimum of heating, cooking and showering. At the same time, the price signal is maintained where savings can be made, with non-essential gas consumption.

How is that supposed to work?

The price cap applies to the basic consumption of a household. Together with Sebastian Dullien from the IMK economic research institute, I suggested in February that a basic consumption of 8000 kWh per year be used, which corresponds to about half the consumption of an average 100 square meter apartment at a price of 7.5 cents per kilowatt hour – that is around the level of December last year, when prices had already risen enormously due to the geopolitical situation.

What do you expect from this?

Gas consumption needs to go down, but in a socially responsible way. Incentives must be set where they can have an effect. At the same time, consumers must be relieved who cannot cope with the high gas prices for their basic needs. You need to be able to rely on not having to choose between a cold apartment and insolvency in winter. For those consuming significantly more than baseline consumption, a strong price signal remains that is needed to reduce overall gas consumption.

What speaks against relieving the burden on richer households as well?

In our model, richer households are just as relieved for their basic consumption as poorer ones, but the state does not subsidize luxury consumption here, such as heating large villas or saunas. On average, the top tenth of households use about twice as much gas as the bottom one. Richer households therefore have much more scope to save gas than poorer ones. That is why the blanket reduction in VAT is a mistake. Because it also dampens the price signal in the non-essential area of ​​consumption, where there is the greatest potential for savings.

But isn’t it a problem with a gas price cap that suppliers are left with their high purchasing costs and, like Uniper, are threatened with bankruptcy?

The gas price cap for basic consumption could be combined with a price cap on the wholesale market, as has been discussed at EU level for months. If the EU does not agree, the federal government can temporarily support the suppliers with compensation payments. The reduction in value-added tax ultimately comes from the state budget. One could even choose a model in which the state gets the money back as soon as wholesale gas prices fall again. This is achieved by introducing a price floor. If the price falls below this level, the suppliers have to pay the difference to the federal government. Incidentally, the example of Uniper also shows that the federal government can mobilize enormous funds when it comes to systemically important areas.

Jan ganger spoke to Isabella Weber

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