Thread by @christianbaye13

A long thread after a long night:

That was tough weekend with many constructive discussions over the commision‘s proposal for the #gas_cost_break.

Given the objectives set by the government, I think we have reached a very good proposal in the #GasKommission.

The leitmotiv of the proposal is: do not weaken the incentives to save gas by a dime, while providing strong relief for firms and families in need. The idea: insurance.
The challenges in arriving at the proposal where great. We wanted something that is quick without being dirty.

This is why we choose an uncommon instrument as our first measure: The government pays one down payment on a household‘s gas bill. This is relief worth one third of the expected cost of gas in this quarter. But, given that it is only a down payment, it does not change incentives:

A change in heating behavior will still change the final gas bill one-for-one at the *current*, not a subsidzied, contract price per kWh.

This is so important because if we were to subsidize consumption, this would only increase wholesale prices—eating up any relief in the end

At the same time, it is as targeted as we could get in the short term: Those with large gas bills conditional on income need more help. Think new insulated inner city homes against old windy country-side houses. Remember gas consumption correlates with income, but only weakly.

It was very important for us to make sure to not throw anyone under the bus. Leave no-one behind is more important than a desire for formal equality. There is a huge dispersion in heating bills.

Of course, we suggest to do the most possible to define need not only in terms of heating expenses, i.e. exposure to the shock. This can be achieved by rendering the down payment taxable income if the payment is large and the income of the receiver particularly high.

Still there is one suboptimal construction in this year‘s relief, which we could not avoid because we had to trade in speed for accuracy.

The utility companies‘ capacities to touch the millions of contracts of their customers within months‘ is limited.

However, we managed to find a solution with the utility companies for next year. Based on the estimate of a household‘s gas consumption, a household will recieve a rebate. That rebate is the contracted price minus the target price, 12 ct/kWh, times 80% of the consumption estimate

This brings down the average price for most consumers in the range of 12-15 ct/kWh, but it leaves the marginal costs at the old contractual price. Thus we do not change gas saving incentives. And we are more targeted than before. Consumers that have low gas prices do not need aid

Let me put this straight: Think of a household with a gas price of 20ct/kWh. This household will nowe pay 30% less, if not changing behavior rel. to before. If that households saves 20% gas, its bill declines by another 30% b/c of higher marginal than average prices. 💪 incentive

Again rendering the rebate taxable if it is large and the income of the household is large too, limits further the extent that consumers who do not need the rebate benefit.

For small and medium enterprises we suggest the same system as for households. Utility companies today cannot identify whether a gas consumer is a small business or many households behind a single meter.

For large industrial consumers, which are way less, we suggest to proceed differently. Also they need some insurance of their exposure to gas prices. However, we choose a similar scheme. We take 70% of their annual consumption in 2021 and they will be offered this amount at a

price of 7 ct/kWh plus network charges, taxes etc. This is roughly means a gross price of 12 ct, just as for consumers. Since firms can sell any gas they have contracted on the wholesale market, again it is the wholesale market price that determines production decisions.

In other words, the subsidy is not for gas consumption of firms—if it were we had traded lemmons—but it helps firms to remain solvent and liquid in these difficult times. But it comes with a condition: Firms have to repay t granted subsidy if shutting down production permanently.

In addition, suggest further measures that further strengtehn gas saving incentives: e.g. to change the rule of how gas bills are split in multi-familiy homes, subsidizing small investments in energy efficiency that can help in the upcoming winters etc.

Overall, I am really happy about the package we agreed to propose. It should have an impact on wholesale gas prices in europe, bringing them down not up, because gas saving incentives where, if anything, strengtehened relative to the status quo.

Measures of direct subsidies on consumption of gas have been avoided as have been ideas of a true price cap—even if they might have sounded tempting initially for some.

Of course, we were also discussing whether and how this could be gamed. So lets start with the obvious: for all measures the reference point is in the past. The down payment of september 2022 for households. Consumption in 2021 for industry. Still checks need to be added for sure

@jsuedekum @BachmannRudi @GeorgZachmann @MSchularick @makro_philip @MSchularick @LionHirth @GuntramWolff