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German Impasse On Energy Efficiency Tax Breaks

by Ulrika Lomas,, Brussels

16 December 2011

A German mediation committee, comprising representatives of both the Bundestag (lower house) and Bundesrat (upper house), has failed during its second attempt to arrive at a consensus on government plans to introduce fiscal incentives in Germany aimed at promoting energy efficiency improvements in the home.

Within the framework of the coalition’s energy policy, which aims to achieve a rapid shift in energy policy away from nuclear power to renewable energy, agreed by the cabinet on June 6, the government drafted a bill to enable the ambitious targets set to be achieved.

The bill provides for the introduction of tax breaks, accorded to individuals electing to carry out energy efficiency improvements in the home, applicable to homeowners of pre-1995 properties, provided that the improvements significantly reduce the energy demands of the building. Under the terms of the bill, property owners would be able to deduct from tax 10% of all home improvement costs annually for a period of up to ten years, amounting to around EUR1.5bn (USD1.9bn).

Defending the bill at the time, the government underscored that the aim is to help Germany reduce greenhouse gas emissions by 40% by 2020 and by at least 80% by 2050. By 2050, the coalition aims to lower primary energy needs by 50%.

Although the bill was adopted by the Bundestag, it was, however, subsequently rejected by the Bundesrat in July. The federal states argued that the measures would simply lead to a significant shortfall in revenues for both the states and communities, due to bear the brunt of the losses. The Bundesrat also complained that the measure in its current form would also benefit wealthy individuals in Germany, subject to a high rate of tax, and demanded clarification as regards the issue of whether or not tenants renting properties would also benefit from the tax incentive.

Commenting on the outcome of the latest conciliation meeting, Hildegard Müller of the German association of energy and water industries BDEW expressed bitter disappointment that an agreement was not reached, and lamented the fact that the lack of consensus will lead to a reluctance among individuals to invest, while at the same time warning that the disagreement runs diametrically counter to the climate protection objectives of the government. Tax incentives form the key building blocks of plans to dramatically reduce carbon dioxide emissions in the energy market and to increase energy saving potential in buildings, Müller stressed.

Given the apparent impasse, the mediation committee has postponed talks until early next year.

TAGS: individuals | environment | tax | energy | Germany | tax breaks | individual income tax

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