State subsidies and tax concessions
In addition to the payments which extractive companies make to public authorities, the state also financially supports the sector with subsidies and tax concession programmes. Financial help is provided for the hard coal mining industry, for instance: there are subsidies for the sales of hard coal and compensation for bottlenecks resulting from capacity adjustments, and there are adaption payments for socially-acceptable personnel reductions in the sector. The State also grants concessions for
energy and electricity taxes
See detailed sources here, Own representation
Subsidies for the sales of hard coal
The German hard coal industry is not competitive, mainly because of geologically-related high production costs. An agreement was therefore reached in 2007 between the Federal Government, the hard coal-producing states of North Rhine-Westphalia and Saarland, the RAG AG (the largest German coal mining corporation based in the Ruhr region) and the Mining, Chemical and Energy Industrial Trade Union (IG BCE) that the subsidised hard coal industry would be terminated in socially-responsible manner by the year 2018. The agreement was based on the Hard Coal Mining Financing Law of December 12, 2007 and on a framework agreement between the Federal Government, the hard coal-producing Federal States, the RAG AG and the IG BCE. The public sector grants temporary aid to promote sales (balancing the difference between domestic production costs and the world market price) and to cope with the necessary decommissioning measures. The subsidies are gradually reduced and ultimately cycled out, a move that also addresses climate protection and resource conservation.
In 2016, the amount of Federal aid for the sales of hard coal amounted to €1,282 million. The state of North Rhine-Westphalia provided more financial aid. The subsidies pledged to the hard coal mining industry are being reduced over time. Between 1998 and 2005, Federal subsidies were cut by approximately 50% – and they were again reduced by 25% between 2006 and 2014. Deviations from the declining trend of subsidisation are based on the fluctuating world market prices for hard coal (inter alia).
The subsidisation of the German hard coal industry is subject to approval by the EU and has been reviewed and approved by the EU Commission. The German Federal Office of Economics and Export Control (in cooperation with auditors) also monitors how these financial subsidies are being used on an annual basis.
To cope with the necessary decommissioning activities, the private-law RAG Foundation is making the former investment assets of the RAG AG available to finance the remaining perpetual burdens following the closure of the mines (burdens such as mine water drainage, permanent land subsidence and groundwater purification). If these assets are not sufficient to cover the perpetual burdens, the Federal Government and the hard coal-producing Federal States will provide subsidies at a ratio of one-third to two-thirds respectively.
See detailed sources here, Own representation
Employees who are at least 50 and 57 years old (underground workers and surface employees respectively) and who will lose their jobs before January 1, 2023 due to the closing-down of mines or rationalisation measures, will receive adaption payment as an interim benefit for a maximum of 5 years until their entitlement to pension insurance becomes valid. The adaption payment reflects the social responsibility of the Federal Government and the hard coal-producing Federal States. In 2016, the Federal Government guaranteed adaption payment totalling €113.2 million.
The number of employees is steadily decreasing; at the beginning of 2008, 32,803 persons were employed in hard coal mining. By the end of 2015 the number of employees had been reduced to 9,640 employees. The number of persons entitled to adaption payment is following this reduction trend, albeit with a time lag. Since more employees will be retiring after the last mine closures at the end of 2018 and a declining number of employees will still be needed after 2018 to complete the closure of mines, the current adaption payment guidelines will still apply until 2027.
In addition to the monitoring of the intended use of funds by the German Federal Office of Economics and Export Control in cooperation with external auditors, the German Federal Audit Office also randomly reviews individual adaption payment cases within the framework of the Federal Office’s annual budget review.
See detailed sources here, Own representation
Concessions for electricity and energy taxes
There are various tax concessions for both the electricity and the energy taxes, including tax exemptions, tax reductions and tax relief. The Electricity Taxation Act (StromStG) provides for certain types of use, or electricity generation. The Energy Taxation Act (EnergieStG) also covers uses in which energy products are tax-favoured. Some of these tax concessions are mandatory under the Energy Tax Directive.
As production industry companies, extractive sector enterprises can particularly profit from the different tax relief possibilities provided by energy and electricity tax legislation.
Three regulations are particularly relevant here:
- Tax relief for companies (§ 54 EnergieStG, § 9b StromStG): If a production industry company applies for electricity and energy tax concessions and its application is approved, it is granted a reduction of 25% of the tax rates on electricity, heating and the fuels used in its production facilities eligible for tax concession.
- Tax relief in the form of ‘peak compensation’ (§ 55 EnergieStG, § 10 StromStG): The additional burden of the ‘ecological tax reform’ on production industry companies is lightened by a reduction in their energy and electricity taxes. Since the increase in revenues generated by the ecological tax reform also served to reduce the factor of ‘work’ and contributed to companies paying less for employers’ contributions to pension insurance schemes in comparison to 1999, a comparative peak compensation calculation is carried out for companies in question. In order to avoid double relief for the employers’ pension insurance as well as for the energy used, saved pension contributions are taken into account in the calculation of the tax relief. The amount of relief is therefore calculated individually depending on the company, and is also capped at a maximum of 90% of the electricity tax paid and 90% of the tax share pursuant to § 55(3) of the EnergieStG. Prerequisites for claiming peak compensation are, among other things, evidence of a certified energy management system and an annual energy intensity reduction (by a statutory value) achieved by all the plants of the production industry company. The comparative value is the average energy intensity value for production industry companies between 2007 and 2012.
- Specific processes and procedures/Manufacturer’s Tax Law (§ 9a StromStG, § 51 EnergieStG, §§ 26, 37, 44 and 47 EnergieStG). Production industry companies can reduce their electricity and energy taxes by 100%, if the energy/electricity is used for precisely determined, energy-intensive purposes (such as electrolysis, metal production, production of glassware, etc.). In addition, companies that produce energy products on their own premises (refineries, gas extraction and coal mining companies) can use these self-produced energy products tax-free (or obtain tax relief) for the purposes of maintaining operations within their own companies.
The subsidy report of the Federal Government contains the total subsidies for the entire production industry, whereas the subsidies in the natural resources industry are shown separately for each sector. The selected tax concessions shown in the table below apply to the entire production industry. Conclusions cannot necessarily be drawn about the proportion of the concessions for the natural resources production sector.
|Law or Act||Year|
|2013||2014||(Target) 2015||(Target) 2016|
|General tax relief (§ 54 EnergieStG)||€145 million||€153 million||€160 million||€160 million|
|General tax relief (§ 9b StromStG)||€975 million||€1,038 million||€1,000 million||€1,000 million|
|Peak balancing (§ 55 EnergieStG)||€167 million||€197 million||€180 million||€180 million|
|Peak balancing (§ 10 StromStG)||€1,870 million||€1,911 million||€1,900 million||€1,900 million|
|Manufacturer privilege (§§ 26, 37, 44, 47 EnergieStG)||€350 million||€350 million||€350 million||€350 million|
Source: 25th Subsidy Report of the Federal Government 2015 17
The Member States of the European Union, however, have an obligation to annually publish comprehensive information on the granting of state aid on a detailed aid website ; this applies to tax concessions from July 1, 2016 (Transparency Obligations for EnergieStG and StromStG – EnSTransV). Under this regulation, customs authorities may collect, process, store, transfer and delete data on energy and electricity tax benefits in order to comply with the Commission’s requirements; the regulation will come into force for the first time on June 30, 2017.
15 Only concessions which are also relevant for raw material-producing companies have been included here.
16 The share of the natural resources extractive industry in the gross value added of the production industry amounts to 0.65% percent. Source: Own calculation from GDP data (here) and DESTATIS (accessed on July 3, 2017).
17 The 26th Subsidy Report of the Federal Government was not yet available by the editorial deadline for the 1st D-EITI Report 2017. For this reason, we refer to the report of 2015. The 26th Subsidy Report is expected to be published in August 2017 at: http://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Oeffentliche_Finanzen/Subventionspolitik/2017-08-23-subventionsbericht-26.html;jsessionid=FD52705712D36647993AF8610E28B5A0 .