German government seeks electricity price cap in January

With public anxiety high over energy prices as winter approaches, the German government has finalized its plans to put forward at a meeting with state governments, according to media reports on Tuesday.

The federal government's draft resolution, which was seen by German media and several news agencies, sets out concrete steps for Germany's €200-billion energy relief package that was approved by parliament at the end of October.

Chancellor Olaf Scholz must now get approval from the heads of Germany's 16 states in a meeting scheduled for Wednesday.

What is the government looking to do?

According to the draft, the federal government wants to implement a price cap on electricity, which would go into effect starting in January.

For homes and small businesses, Scholz's government is seeking a price cap of 40 cents per kilowatt hour for 80% of a small business or home's typical electricity consumption.

Mid-size and large companies could also expect an electricity price cap. The price would be capped at 13 cents per kilowatt hour for 70% of the businesses' energy consumption in the previous year.

According to the draft, some of the funds would be raised via a windfall tax on energy companies agreed at the EU level.

The government also plans to enact a gas price cap starting on March 1 of next year, and is seeking to have it take retroactive effect in February.

The date is earlier than what an expert commission said was possible, but is a step towards state leaders who called for faster action.

The draft also brings forward plans to implement a €49 monthly ticket that would enable travelers to use short-and-medium-distance public transportation nationwide at a lower cost.

More federal money to help states and local authorities deal with refugees is also being planned, as numbers increase in no small part owing to the war in Ukraine. 

Health Minister Karl Lauterbach also said late on Tuesday that a new funding package for hospitals and care homes struggling with rising energy prices would also feature.

What are the sticking points?

While the draft contains compromises aimed at securing the approval of Germany's 16 state leaders, federal government and the states are liable to clash over who is paying for what.

Scholz is pushing for the states to cover the costs of the reduced public transportation tickets. State leaders have also been firm about the federal government covering more costs for housing subsidies.

The chancellor and state leaders have been under pressure to act amid rising inflation and soaring energy prices in the fallout of the COVID pandemic and of Russia's invasion of Ukraine.

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