Germany levies household tax to spread the pain of gas surge

The German government said households would face additional annual costs of about 290 euros ($296) to pay for natural gas as the burden of Russia's compression of energy flows to Europe is redistributed.

From October, consumers will have to pay an additional 2,419 euro cents per kilowatt-hour for natural gas, Trading Hub Europe said in a statement on Monday. The blow of the temporary levy will be cushioned by subsidies for some households.

"The tax is a consequence of Putin's illegal war of aggression against Ukraine and the artificial energy deficit caused by Russia," Economy Minister Robert Habeck told reporters in Berlin. The government is working on a compensation package for consumers because the tax poses a "challenge" to them, Chancellor Olaf Scholz said in Oslo after meeting with His Scandinavian counterparts. 

The tax comes as Europe shifts its focus to limiting consumption in the face of an escalating energy crisis. Electricity prices in Germany have risen to record levels amid growing concerns that the region may struggle to generate enough electricity this winter. This pushed up the inflation rate and put the industry at risk.

Habeck said the tax, which is valid until April 1, 2024, will cost the average household about 97 euros a year, the couple will pay about 194 euros more, and a household of 4 people will incur additional costs of about 290 euros.

Utilities will be able to shift the costs of compensating for missing Russian supplies from the beginning of the fourth quarter. Germany has tried to avoid forcing consumers to pay for higher energy prices after Russia's invasion of Ukraine. But officials fear that Moscow could completely cut off the flow of gas, forcing them to act.

The mechanism is designed to accelerate inflation in Germany, analysts at Commerzbank Research said in a report on Monday. The bank estimates that the inflation rate should rise well above 9% by the end of the year. Consumer prices in the continent's largest economy jumped 8.5% from a year ago in July.

Some consumers will be eligible for a heating subsidy, Habeck said. German Finance Minister Christian Lindner also said he would consider ways to exempt from the sales tax to partially ease the burden. 

The tax follows a decree that went into effect on Aug. 9 to help energy companies that have been forced to buy more expensive gas on the spot market. Their cost rose sharply after Moscow blocked flows through the key Nord Stream pipeline to Europe. 

Uniper, Germany's biggest buyer of Russian gas, is counting on the levy to help it shore up its finances after the company signed a bailout from the government. Energy companies are asking the government to raise prices for consumers to avoid a domino effect in the sector. 

"With a pay-as-you-go system, all gas consumers can incur the additional costs caused by Putin's war," said Timm Koehler, chairman of the gas industry group Zukunft. "Gas traders are currently trying under high pressure to guarantee supplies to their customers, but without price adjustment rules, there is a risk of insolvency with serious consequences for the entire system."

Gas importers affected by the reduction in volumes are entitled to financial compensation for part of the additional costs for the purchase of replacement, provided that gas contracts were concluded before May 1, Trading Hub Europe said in a statement. 

Reducing gas consumption will help determine Europe's ability to survive the winter. Incentives to reduce demand are expected to be at the heart of the region's agenda.

Germany's gas storage facilities are 76% full, according to data from the Federal Network Agency, known as BNetzA.