Dhe gas commission set up by the federal government presented its final report in Berlin today, thereby completing its work. The recommendations are the result of intensive, constructive discussions between science, energy suppliers, the housing industry, industry and trade unions. The core of the report is a “gas price brake”. This is intended to relieve people and companies financially without further heating up gas consumption. Whether this balancing act succeeds and whether the relief arrives where it should is now a question of the exact design. That’s what matters:
Subsidizing gas consumption is pointless
In order to lower the high gas prices, the most obvious idea is to simply subsidize the prices. In the current situation on the gas market, however, such a strategy is bound to fail because it increases demand even though the technical possibilities for importing more gas have been exhausted. The higher demand would only drive up the price on the energy exchanges. In this way we would buy the gas away from our European partners – at least until they also decide on subsidies and thus further fuel the price spiral. Ultimately, the only winners from this dynamic would be the gas exporters. The subsidy would not end up with German consumers, but in the pockets of international energy companies.
The basic principle of the Commission’s recommendation is derived from this insight, namely that payments from the gas price brake should not be linked to current consumption. Instead, they are intended to provide relief that is as tailored as possible, without weakening the financial incentives to save on gas. Conversely, this means that gas bills must neither increase if someone decides to use more gas nor decrease if someone saves gas.
The gas price brake is not a price cap
This principle is easiest to explain using the example of households and small businesses. The state pays them an amount to their account with the energy supplier for the first time in December and then monthly from March 2023 to April 2024 – regardless of current consumption.
How high the sum is is determined solely by the individual annual consumption forecast from September 2022 and the gas tariff. Both together reflect how affected gas consumers are by the crisis: Anyone who lives in an unrenovated house and therefore has a high forecast consumption or whose prices have risen sharply simply needs more relief.
What matters is that people get the money even if they save gas. So someone who would rather use a little less gas and spend the money on other things can do that. Those who do not want to do without gas can continue to use the sum for gas.
Although the gas price brake enables basic consumption to be covered, it is not a subsidy for consumption itself, nor is it a price cap. Consumers are free to decide what to do with the monthly payment. Buying expensive gas with it is just one of many options. This principle is the guiding principle of the gas price brake: allow freedom of choice, but receive incentives to save gas.
Allow resale to prevent waste
For industry, the Commission has proposed a separate mechanism. At first sight, this proposal seems to deviate from this principle of “preserving an incentive to save”: a limited price subsidy is actually envisaged here. However, these large consumers should be allowed to resell gas once they have bought it, with companies only being able to claim the gas premium if the location is retained.
The fact that subsidized gas does not have to be consumed by the user may initially seem unfair. Why should the state make gas cheaper for companies that they ultimately don’t use themselves and even resell at higher prices? The ability to resell gas ensures that the gas is used where it generates the greatest added value. Anyone who can do without gas more easily – be it because they use another energy source or because their added value from the gas is less – will prefer to sell the gas. In this way, the scarce gas gets to where it creates the greatest added value.
The gas bonus thus becomes a double bonus against de-industrialisation: it immediately protects particularly valuable production. At the same time, the proceeds from the sale help the companies that are reducing their production to better withstand the loss of income. The gas price brake thus enables lower gas consumption while at the same time maintaining the production sites.
If there were a gas shortage due to insufficient savings, all companies would have to consume less gas across the board. Such a forced shutdown would lead to far greater economic disruption in supply chains. The tradability thus minimizes the economic consequences of the gas shortage, which ultimately benefits everyone – employees, companies and consumers.
Without an effective resale option, the gas price brake would remain a subsidy that ultimately evaporated in price increases. The Gas Commission’s proposal avoids this, so that all gas consumers, large and small, receive financial relief based on their burden. However, the relief is, of necessity, independent of the current consumption itself.
Christian Bayer is Professor of Economics at the University of Bonn.
Lion Hirth is Professor of Energy Policy at the Hertie School.
Matthias Kalkuhl is Professor of Climate Change and Economic Growth at the University of Potsdam.
Karen Pittel is Professor of Economics and Director of the ifo Center for Energy, Climate and Resources.
All four were members of the Gas Commission.