Gas price brake for the industry wobbles

It is becoming apparent that Chancellor Olaf Scholz’s (SPD) “defense shield” central crisis instrument could bring significantly less relief than hoped.

Gas price brake: the plan

The announcement at the end of September in the resolution paper on the defense shield still sounded without alternative: the aim was to “bring prices to a level” that “protects companies from being overwhelmed”.

The expert commission convened by the government subsequently developed a gas price brake for the industry. From January onwards, companies are to pay a purchase price of just seven cents per kilowatt hour for 70 percent of their consumption.

>> Read here: Robert Habeck in the big Handelsblatt interview

Complicated applications and funding limits would thus be a thing of the past. Companies of all sizes and in every situation would automatically benefit from the gas price brake. They only have to promise a location guarantee and investments in the transformation of their business.

In view of the energy crisis, the EU Commission has already relaxed state aid law. The current version of the legal framework will apply until the end of the year. Now it’s about how the framework will be designed from January. The biggest petitioner is Germany. The pressure is high.

But the hope that the EU Commission will act mercifully is fading. Germany has been criticized internationally for its rejection of an immediate European price limit for gas purchases. At the same time, Berlin wants to raise up to 200 billion euros for its own rescue package, which is interpreted abroad as a distortion of competition.

The problems with the gas price brake

Germany would have to bring about several fundamental changes to European state aid law for its gas price brake. Even the basic construction of the price brake would currently not be permitted:

• With the German mechanism, how much state aid a company receives depends on the difference between its own current contract price per kilowatt hour and the seven cents. The more expensive the contract price, the higher the state aid, even if the conditions are otherwise identical. However, state aid law stipulates that the same company can receive the same amount of aid.
• In addition, only companies whose energy costs have at least doubled may be helped. Since the state does not have this information, only the company, it follows from this part of EU law that the companies must submit applications for the aid. This is exactly what the government wants to avoid with the price brake, so as not to create any bureaucratic hurdles.
• Another important requirement in the EU framework: the more energy is used, the higher the aid. Various levels are provided for this depending on the industry. The German gas price brake should apply to all companies, regardless of the industry.
• The EU also stipulates that each stage has an upper limit for funding. In the last stage, for energy-intensive sectors such as chemicals or paper, this is currently 50 million euros. This also does not fit the German model. “At BASF, we would easily be in the three-digit million range, possibly even in the billions,” says the gas expert commission.

Government officials are now trying to persuade Brussels to largely remove these points from the legal framework from the turn of the year. However, it is considered impossible that they will get through all their demands.

>> Read here: Federal government thwarts its own gas strategy – a comment

That is why the ministries are already discussing a kind of “gas price brake light” for the industry. One measure would be to lower the gas price across the board. Instead of capping the price of each kilowatt hour at seven cents, each kilowatt hour could be discounted by a certain cent amount that is the same for everyone.

That would still not solve the problem with the different levels. A government official therefore says: “I suspect there will have to be stages in the gas price brake.”

So far, the federal government is planning for companies to get 70 percent of their previous year’s consumption at a reduced price. The lower the energy input, the smaller the subsidized quota could be. The levels could be provided with appropriate upper limits. “It is likely to be higher than 50 million euros, but it will probably not work without a limit,” says a leading coalition politician.

However, this would make the simple implementation of the gas price brake a thing of the past. Energy suppliers often have no data on the energy intensity of their corporate customers’ production.

It is therefore conceivable that companies will have to submit applications again. However, the capacities for the examination at the federal level are limited. Even now, with the significantly smaller energy cost containment program for industry that is to be replaced by the gas price brake, the test times are immense.

>> Read here: Commission chief Veronika Grimm explains the gas cost brake

According to the gas expert commission, one possibility is to start without an application process and then to grant funding approvals retrospectively. Or you can only implement the tests in the upper funding levels, i.e. with larger amounts in the millions.

If the EU Commission remains stubborn on all points, which Berlin considers unlikely but does not want to rule out completely, an alternative to the gas price brake would probably be needed. Then it might have to address classic corporate aid via direct payment.

The government schedule

In any case, the time for those in government is extremely short. On November 18, the gas price brake is to be passed by the cabinet. This emerges from the schedule of the federal government, which is available to the Handelsblatt.

On December 16, the Federal Council is to finally approve the law, just a good two weeks before the planned start of the gas price brake. It is the last meeting of the state chamber this year. A shift in the legislative process would immediately mean a shift in the gas price brake.

After all, there should no longer be any problems with the gas price brake for small and medium-sized enterprises (SMEs): They are not subject to EU state aid law.

More: Energy prices are driving a quarter of all companies to lay off jobs.