Germany Should Cut Tax on Energy to Help Switch, BayWa Says

Germany should cut value-added tax levied on energy consumption to help cut household bills as the nation transitions to wind and solar generation from fossil fuels and nuclear, according to BayWa AG.

Reducing VAT to 7 percent from 19 percent would protect consumers, especially the poorest, until more wind farms and solar plants are complete and the economy is more energy efficient, Klaus Lutz, chairman of Munich-based commodities trader BayWa, said today by phone. “Why do we have a tax privilege on animal food and not on energy?” he said. “Energy is one of the vital resources for our society.”

Consumers in Europe’s biggest economy have seen power bills surge this year after a surcharge they pay for Germany’s increased use of wind and solar generation jumped 47 percent to a record. Germany seeks to more than triple the share of renewables in its power mix by 2050 while phasing out nuclear generation.

Lutz’s comments come as the Paris-based International Energy Agency warned today that consumers have borne the brunt of Germany’s embrace of more expensive renewable energy through higher utility bills, while large industry has been shielded from the greater costs.

“For me, the VAT is a quick solution,” Lutz said. Changing taxes and subsidies in the energy industry will take longer, he said, declining to specify how the VAT reduction should be funded.

Voter Resentment

The administration of Chancellor Angela Merkel risks voter resentment in the run-up to the Sept. 22 election if it can’t curb the “dramatic” price increases, he said.

Investors including BayWa want Germany to install clearer energy rules after that vote, Lutz said.

“There is no clear opinion in our country about what do we do,” he said. “We as BayWa do not want to leave our core market. If we had bet only on Germany, we would be in deep, deep trouble right now and in the future.”

Germany’s renewable energy projects are made profitable by preferential fees called feed-in tariffs paid to wind and solar projects and funded by consumers. The EU is in talks with industry leaders on the best way to continue shifting the bloc further away from fossil fuels after 2020.

“I don’t care if we have a cap on feed-in tariffs,” Lutz said. “In the long-term, feed-in tariffs will be cut down to zero.”

The EU will struggle to expand its authority over the bloc’s energy system because national law takes precedence and will continue to do so for many years, Lutz said.

“The tendency will be to reduce the influence of the European Union,” he said.

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