Berlin considers slashing electricity tax by 95% to boost heat pump uptake

Germany may slash electricity taxes to near-nothing amid flagging heat pump sales, a move backed by liberal and conservative politicians as well as the renewable energy lobby.

From 2024, Germany wants to see 500,000 heat pumps installed per year. With a wide-ranging fossil boiler ban delayed until 2028, heat pumps stand to benefit from a government push to reduce taxes on electricity.

Germany’s Ministry of Economy and Climate Action regularly brings together manufacturers and other groups to discuss ways of supporting the ramp-up of heat pumps.

What started as a bid to ensure sufficient production capacity on German soil has become a forum to ensure that households get sufficient incentives to buy the devices.

In particular, the heat pump’s fuel – electricity – has come under scrutiny for being too expensive. “The electricity tax, in particular, is a relic of the past and today works against the climate goals,” stressed Martin Sabel, the CEO of the heat pump association BWP, after the third heat pump “summit” in Berlin on Tuesday (19 September). 

“We are not calling for special treatment, but for fair, competitive conditions so that the switch from gas and oil to heat pumps pays off quickly through favourable operating costs,” he stressed. 

While Germany is locked in a row over potential power subsidies to industry, a proposal by the liberal party (FDP) is gaining traction: dramatically slashing taxes on electricity down to the EU minimum.

“I am committed to reducing the electricity tax to the EU minimum,” says Bettina Stark-Watzinger, the country’s federal education minister who hails from the FDP – a position backed by the parliamentary arm of the party.

Germany’s electricity tax has remained unchanged since 2003, when the EU adopted its Energy Taxation Directive imposing bloc-wide minimum rates on energy products. The absolute bottom rate for electricity taxation is €0.5 per Megawatt-hour (MWh) compared to today’s rate of €20.5 per MWh – meaning the envisaged reduction could reach about 95%.

The idea is gaining momentum in the public debate. “The step would benefit households and businesses alike, complicated exemptions would be eliminated,” argues Frankfurter Allgemeine Zeitung, one of Germany’s most influential newspapers.

“Electricity is far too expensive in Germany,” agrees Jens Spahn, speaking on behalf of the conservative CDU party. The party is also expected to propose slashing taxes down to the EU minimum on Thursday. 

“It is nice that the Union is now taking up our long-standing BEE proposal,” said Simone Peter, CEO of renewables lobby BEE. 

Boost needed

With lower electricity prices, the government hopes that households will increasingly turn to heat pumps rather than fossil boilers.

Sales of fossil heaters have surged on the back of the government’s announced ban, with 667,500 units sold in the first half of the year, a massive uptick of 44% compared to last year.

Meeting German climate targets requires that 500,000 heat pumps be sold annually from 2024. Initially, a ban on fossil heaters from then on was supposed to make them obligatory.

After multiple political rows, the ban has been delayed to 2026 in large cities and 2028 in smaller towns.

Germany adopts watered-down fossil boiler ban for 2028

The German parliament adopted on Friday (8 September) a controversial ban on new fossil heaters starting from 2028 at the latest, following months of government infighting and an injunction by the country’s top court.

[Edited by Alice Taylor and Frédéric Simon]

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