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Germany – EHS Candidate for Reform

Energy tax relief for companies in agriculture and forestry for gas oil

The energy tax relief for gas oil used to operate agricultural vehicles and machinery for crop and livestock production or livestock farming was first introduced in 2017. The subsidy aims to support agricultural production, maintain prosperity and competitiveness of the farming and forestry sector and ensure food security in Germany and Europe. The reduced tax rate is more than twice lower than the standard rate. The subsidy makes the fuel for agricultural vehicles and machinery cheaper. This lowers the production cost, reduces the incentive for fuel efficiency and increases agricultural production and use of fuel. Similar subsidies exist in Belgium, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Slovenia, Spain and Sweden.

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The foregone government revenue of this subsidy was EUR 443 million in 2019. If the subsidy were abolished, the diesel price for farmers would increase by 18.8%, which would decrease the demand for gas oil by 4.7%.

The environmental impacts caused by the energy tax relief are increased GHG emissions and air pollution, higher consumption of natural resources and impact on biodiversity and surface waters due to higher use of fertilisers and pesticides. If the subsidy were removed, it would decrease CO2 emissions by 237 million tons per year.

There are no foreseen reforms of this subsidy in Germany. The main concern for phasing out the subsidy is the competitiveness of the agricultural sector due to higher energy prices for farmers. There are several options to support farmers while phasing out the subsidy. The farmers could be compensated for the loss of support with premiums independent of fuel use. Income support for farmers under EU Common Agricultural Policy (CAP) or other support schemes that foster energy efficiency investment could also be viable options. The German Environment Agency proposes an alternative option for reform: a tax concession based on a flat-rate procedure. The refund would be a flat-rate premium based on the size of the agricultural land. The economic incentive to save fuel would remain in full force, and the actual fuel consumption would no longer play a role in the tax reduction.

More information on the energy tax relief for companies in agriculture and forestry for gas oil and other candidates for reform in Germany and other Member States can be found in the country case studies and factsheets compilation.