Germany Could Pay Everyone's December Gas Bill

The German government is set to pay this December monthly gas bill for every household and small-to-medium businesses in the country, as part of a plan to shield citizens from surging energy prices.

The new measure—approved by a government-appointed expert panel on Monday—is part of a bigger plan Germany has to cushion its citizens from an unfolding energy crisis exacerbated by the Russian invasion of Ukraine and the consequential fallout of trade relations with Moscow.

Germany, as one of the countries in Europe that most heavily relied on Russian gas supplies, is now among the European nations who are struggling the most to shield its low- and middle-income families from rising inflation, and what are expected to be skyrocketing energy bills this winter.

In a survey conducted in September by German public broadcaster ARD, nearly 40 percent of people said they would be unable or would struggle to pay energy bills this winter.

At the end of September, the country's chancellor Olaf Scholz, passed a $194 billion (€200 billion) package to protect German consumers from surging energy prices.

Last week, Germany's economy minister Robert Habeck revealed that the country will subsidize energy bills in 2023 with $12.8 billion that will go to cover the usage fees of four high-voltage transmission grid companies (TSOs), which forms part of electricity bills. According to Habeck, subsidizing these fees would prevent them from rising later this winter, as they were expected.

Part of the two-stage plan approved on Monday by the government-appointed pool of experts, together with the one-off payment of a monthly gas bill in December, is a cap on gas and heating prices.

Households as well as small- and medium-sized firms would pay $0.12 per kilowatt-hour for the first 80 percent of their gas bills for 14 months from March 2023, while large industrial firms would pay $0.068 per kilowatt-hour for the first 70 percent for 16 months as of January 2023, according to DW.

But the rest of Europe has been looking at these subsidies with concern.

The plan, described by Scholz as a "defensive shield," is facing scrutiny from European Union leaders who, though sympathetic to Germany's reasons, fear the new measure will distort competition in the EU's single market.

The new measures are risky for Germany too, said Michael Ben-Gad, professor of economics at City, University of London.

"There is no good reason for doing this if the price of energy remains high in the future," he told Newsweek. "Prices adjust to match demand to supply, so by intervening in this way the government is encouraging more demand than should be optimal. The only counterargument is that the shortage is temporary and so for the case of the aid to businesses, you prevent otherwise viable energy-intensive companies from going out of business because of a shock that is temporary.

"Again, if the energy price remains permanently high, the business may in fact no longer be viable and permanently dependent on subsidies for its survival."

Would Such Measures—And The Problems They May Bring About—Be Possible in the US?

The production cuts announced by OPEC last week will likely lead to rising oil and fuel prices across the world, including in the U.S., where there's a risk this could send inflation soaring.

Could the Biden administration subsidies energy bills to shield Americans from surging gas prices?

The idea is likely politically fraught, but it cannot be ruled out entirely.

"At the federal level I think this would be unlikely if the House or Senate changes hands after November," Dr. Ian Parry, Principal Environmental Fiscal Policy Expert
at the International Monetary Fund (IMF), told Newsweek.

"But in the past I think there have been some proposed legislation with lump-sum rebates to households in their electricity bills to compensate them for higher electricity prices (from carbon pricing)."

Dallas Burtraw, senior fellow at Washington-based, non-profit research institution Resources for the Future, told Newsweek he doesn't anticipate "direct subsidies for electric bills could surface in the U.S., although this may be due to the fact that price changes in the U.S. unfold differently."

Burtraw explains that the way Germans pay for their energy bills puts them in a very different situation than Americans.

"In Germany, many households and businesses subscribe to electricity services in a competitive market. If the customer has a short-term contract, then changes in fuel prices that raise electricity costs click in when the contract rolls over," Burtraw said.

"In the U.S., most customers are either in regulated regions or have default service if they are in competitive regions. In these U.S. cases, fuel price changes will pass through but it occurs over a longer time frame with changes averaged over time.

"Moreover, the changes in natural gas prices, which is important to electricity generation, are more moderate in the U.S. Natural gas prices and costs of generating electricity at natural gas plants frequently sets the marginal cost of electricity generation," he added.

Ben-Gad, on the other hand, thinks "it is certainly possible" for something similar to what's happening in Germany to happen in the U.S., "either at the state or federal level."

The only difference, said Ben-Gad, is that "in Europe, with its parliamentary systems of government, it is much easier for the executive, as long as the government enjoys a majority, to quickly pass the legislation. In the U.S., the legislature and executive will need to reach an agreement which usually requires lengthy negotiations, even when one party controls both branches," he said.

"However, unlike other legislation, a direct subsidy could pass the Senate with a simple majority (the VP [vice president] breaks the tie in favour of the executive since the Senate is currently evenly split) rather than need the 60 votes to end a filibuster if it comes as part of the budget reconciliation process."

A shield for American households: The Inflation Reduction Act

But focusing on electricity bills, Burtraw said "there are plenty of examples of indirect support for electricity customers or low income households" in the U.S.

The Inflation Reduction Act, for example, the recent large climate-related legislation pushed forward by the Biden administration, "will reduce national average electricity prices by supporting lower cost renewable generation and by shifting system costs from electricity customers to taxpayers."

According to Karen Palmer, senior fellow at Resources for the Future, the Inflation Reduction Act "perpetuates tax credits for wind and solar and other sources of clean energy into the future" for likely ten years or more according to the U.S. meeting its climate goals.

"And those tax credits are essentially paid for by taxpayers, and they end up lowering electricity rates relatively to what they would have been if we hadn't had this bill passed," she told Newsweek.

This act shields American households from drastic price variations but are far from being an emergency program.

"The Inflation Reduction Act decreases the importance of natural gas and electricity supply and therefore decreases exposure of customers to variations in that price," said Palmer. "It's a way of addressing household electricity cost, but more of a longer-term thing than what's happening in in Germany right now."

Update 10/12/2022, 6:30 a.m. ET: This article has been updated to add further comment from experts.

Correction 10/12/2022, 10:05 a.m. ET: This article was updated to specify that Michael Ben-Gad is a professor at City, University of London.