The gas price brake is coming: A fund worth 200 billion euros is intended to provide people in Germany with a noticeable reduction in energy prices. But the “brake” is controversial among experts. Its inventor even had to put up with insults from colleagues.
The word “Wumms” is very popular with Olaf Scholz for reasons that have not yet been clarified, and what the traffic light government announced this Thursday even earned the Federal Chancellor the rare title “double bang”. Scholz says that the 200 billion aid package that has been decided against rising energy prices, which the federal government will launch for citizens and companies, is no less.
The central component of the package is what is known as the “gas price brake”. The details still have to be worked out, but according to a key issues paper by the traffic light government, the prices for at least part of gas consumption should be brought to a level “which protects private households and companies from being overburdened”. The unpopular gas surcharge, which should have come into force on Saturday, will not apply.
The “double boom” originated in February. At that time, the economists Isabella Weber and Sebastian Dullien called for a gas price brake for the first time in a guest article for the “Süddeutsche Zeitung”. Every household should be able to obtain the first 8,000 kilowatt hours of its annual consumption for a capped price of 7.5 cents per kilowatt hour.
Weber and Dullien argued that this not only relieves those households that need help most urgently – such a gas price brake could even help to reduce inflation. Inflation is usually fueled further when the government pumps additional money into the market and fuels consumption. But because current inflation rates are due in large part to higher energy prices, which business is passing on to its customers, artificially lowering prices would also keep inflation in check.
Weber’s theses had recently caused a stir in economics – and violent hostilities. As early as December 2021, when energy prices began to rise due to increased demand from the economy, the 35-year-old spoke out in favor of “strategic price controls” in the British “Guardian”. The criticism was huge. Famed economist, New York Times columnist, and Nobel laureate Paul Krugman even went so far as to call Weber’s idea “truly stupid.” Krugman was to apologize a little later for his gaffe. On Twitter, she experienced “a wave of hatred and insults,” Weber told the “Spiegel” in January.
Now, almost eight months later, the “gas price brake” is officially government policy. But the criticism has not stopped. On Thursday, leading economic research institutes contradicted Weber and Dullien’s inflation argument. Because of the high proportion of imports, a reduction in the gas price would require “massive subsidies, which in turn would of course then pump new purchasing power into the private sector,” said Stefan Kooths from the Kiel Institute for the World Economy at the presentation of the autumn report by the leading economic research institutes. This will once again fan the general economic upward pressure on prices. “And that’s destabilizing, but it’s also particularly problematic for the lower income groups, for whom it’s downright a disservice,” he said.
The controversial gas surcharge, on the other hand, is better than its reputation, said Kooths. It’s not just about saving the gas suppliers. By passing on the higher gas prices to the population more quickly, there is also an incentive for customers with old contracts to save on gas.
Energy has never been as expensive as it is now. But instead of panicking, you should calmly check potential savings at home. As our guide shows, there are many of them.
Because that is the second point of criticism of the gas price brake: Those who get their gas cheaper also have less incentive to save. That in turn would be counterproductive at a time when, according to various studies, Germany has to save around 20 percent of its consumption. According to the Federal Network Agency, private gas consumption during this cold week was significantly higher than in previous years. “The need to save energy remains unchanged,” said Economics Minister Robert Habeck (Greens) at the presentation of the price brake on Thursday.
Weber disagrees: “Because only basic consumption is capped and, in addition, very high market prices create strong incentives to save”, the savings incentives are still there, she wrote on Twitter on Thursday. A commission of experts is now to work out proposals as to how high the cap will be and at what limit it should be set. In any case, the federal government has Weber on its side: the gas price brake will not fuel inflation, emphasized Finance Minister Christian Lindner (FDP). Economics Minister Habeck explained that the incentives to save energy remained. The coming months will show who is right.