State Subsidies and Tax Concessions

The payments made by extractive companies to government agencies (see Revenues generated by the extractive industry) must be seen in the context of the subsidies and tax concessions with which the state supports companies. Here the financial help provided to hard coal mining (see section a. and b.) is the only subsidy that specifically relates to the extractive industry. This financial help provided subsidies for the sales of hard coal, compensation for bottlenecks resulting from capacity adjustments (until 2022); in addition, there are adaptation payments (APG) for socially-acceptable personnel reductions in the sector (until 2027). This financial help ensures the socially acceptable phasing out of subsidised German hard coal mining.

Companies in the extractive industry outside of hard coal can benefit from additional financial help without a specific link to the extractive industry (see section c.). An example is concessions granted by the State in respect of energy and electricity taxes for manufacturing companies (see section d.).

There are different definitions of the term subsidies at both national and international level, and several methodological approaches are used to tackle the topic. The term used here is based on the definition of the subsidy report of the Federal Government. The subject matter of the subsidy report is defined in Section 12 of the Stability and Growth Act (StabG) and includes benefits and concessions for private companies and economic sectors. Financial help is defined as financial contributions by the Federal Government to entities outside the Federal Administration that benefit private companies and sectors of the economy, while tax benefits are special tax exemptions that result in a loss of revenue for the public authorities. Individual federal states report on their financial help in their own subsidy reports (see Appendix 5 of the FederalGovernment’s Subsidy Report).

Subsidies for the sale and closure 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 Federal 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 a socially-responsible manner by the year 2018.

The agreement was based on the German Hard Coal Financing Act of 20 December 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 granted 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 were gradually reduced and ultimately cycled out, a move that also addresses climate protection and resource conservation.

Development

State aids are intended to ensure that after the permanent cessation of mining, any existing obligations (contaminated sites, in particular shaft safety and monitoring, settlement of mining damage, demolition obligations and land rehabilitation as well as personnel settlement costs) that are not borne by the RAG Foundation are fulfilled. In 2022, the Federal Government granted sales and closure aids for the last time, the amount of this aid was €264.8 million. The Federal State of North Rhine-Westphalia provided more financial aid. The subsidies pledged to the hard coal mining industry for the sales of hard coal and mine closures were reduced over time. Between 1998 and 2005, Federal aid was cut by approximately 50% – and the payments were again reduced by 25% between 2006 and 2014. Deviations from the declining trend regarding the subsidisation are based on the fluctuating world market prices for hard coal (inter alia). For 2021, the state of North Rhine-Westphalia granted subsidies totalling €156.4 million for contaminated sites and decommissioning expenses for hard coal mining. In 2022, the subsidies paid by the Federal State totalled €153.7 million. From 2023 onwards, the Federal State of North Rhine-Westphalia will only grant payments for contaminated sites; these payments will be made for the last time in 2025.

State aid procedure and control measures

The subsidisation of the German hard coal industry is generally subject to approval by the EU – insofar as it constitutes aid within the meaning of Art. 107 TFEU and does not fall within the scope of the General Block Exemption Regulation – and has been reviewed and approved by the EU Commission. The German Federal Office of Economics and Export Control (BAFA) (in cooperation with auditors) also monitors how these financial subsidies are being used on an annual basis.

Prevention

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 drainage¹, permanent land subsidence² and groundwater purification³).

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.

Adaption payments

Workers who are at least 50 years of age (underground workers) or 57 years of age (above ground workers) and who, on the occasion of a closure or rationalisation measure, have lost their job before 1 January 2023, will receive adaptation payments (APG) for up to five years as interim aid until they become eligible for pension insurance benefits.⁴ The adaptation payments reflect the commitment of the Federal Government and the coal-producing Federal States to social responsibility. In 2022 and 2023, the Federal Government granted adaptation payments totalling €48.7 million and €38.6, respectively.

Employees

The number of employees subject to compulsory social security contributions in hard coal mining is declining. At the beginning of 2008, 32,803 persons were employed. By the end of 2021, the number of employees had been reduced to 1,520 employees in a socially acceptable manner. This figure fell to 1,011 employees subject to social security contributions in the coal mining industry as at 31 December 2022 and to 1,000 again as at 31 December 2023. The number of persons entitled to adaptation payments 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 and deal with contamination and other problems caused by mining the current adaptation payment guidelines will still apply until 2027.

Control measures

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 adaptation payment cases within the framework of the Federal Office’s annual budget review.

Transparency of State Financial Aid and Support

Extractive companies can also receive non-specific financial help from the state that is not related to the natural resources sector, if they meet the appropriate criteria for the support programme. Financial aid can be granted as a subsidy, loan or help servicing debt, although nowadays the majority of financial help is in the form of subsidies. For a long time now loans granted directly from the Federal budget have played a secondary role. The reason for this is that the Federal Government uses banks to award the loans and they generally receive an interest subsidy for implementing the programme. The Federal Government’s subsidy report provides information about the financial aid, the extent of the aid and the support objectives. There is no information in the report about the amount of financial aid paid out to the individual recipients.

State subsidies for companies are also the subject of the Treaty on the Functioning of the European Union, as this may reduce competition in the common internal market.

Instead of the term “subsidy”, EU law uses the term “state aid”, which has a legal definition that differs from the term “subsidy”.⁵ Government support does not only mean direct financial contributions to undertakings, debt write-offs or subsidised loans, but may also cover guarantees, tax breaks or the provision of land and goods and services on special terms which confer an advantage on the undertaking concerned. In order to guarantee fair competition in Europe, the Treaties and corresponding secondary legislation determine the conditions under which such state aid is permissible. The member states of the European Union are required each year to disclose information on any government support granted. Depending on the legal basis under state aid law, this obligation applies to each individual aid above a threshold of €100,000 per company. The respective member state has to disclose this information on a detailed state aid website.

The name of the recipient, the amount and the purpose of the state aid together with the legal basis must be published. Where companies in the extractive industry receive state aid, e. g. in the form of reduced-rate loans above the threshold, these can be viewed by the public.

Concessions for electricity and energy taxes

There are various tax concessions for both electricity and energy taxes, including tax exemptions, tax reductions and tax relief. The Electricity Tax Act (StromStG) provides concessions for certain types of use, or electricity generation. The Energy Taxation Act (EnergieStG) also covers uses in which energy products are tax-favoured. A part of these concessions is mandatory under the Energy Tax Directive (EU) 2003/96/EC of 27 October 2003.

As manufacturing 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 for the reporting years 2022 and 2023:

• Tax relief for companies (Section 54 Energy Tax Act (EnergieStG, Section 9 b Electricity Tax Act (StromStG)): If a manufacturing 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 In the area of electricity tax law, tax relief is possible for electricity consumed in 2024 and 2025 up to the EU minimum commercial rate (relief from EUR 20/MWh to EUR 0.5/MWh). A relief within the framework of the so-called “electricity price package” that exceeds the level of individual peak compensation in any case.⁶
• Tax relief in the form of so-called peak compensation (Section 55 EnergieStG, Section 10 StromStG): The statutory relief provisions expired at the end of 2023. Before that time, the additional burden of the “ecological tax reform” on manufacturing companies could be 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 Section 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 manufacturing company. The comparative value is the average energy intensity value for manufacturing industry companies between 2007 to 2012.

• Certain processes and procedures/manufacturer privilege (Section 9a StromStG, Section 51 EnergieStG, Section 26, 37, 44 and 47 EnergieStG): Companies in the manufacturing industry can use electricity or energy products for specific, energy-intensive purposes (such as electrolysis, metal production, manufacture of glassware, etc.). and reduce their tax bills by 100%. 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 manufacturing industry; they are not shown separately for each sector such as the extractive sector. Where the concessions in the field of electricity and energy constitute state aid, these come under the reporting and transparency obligations of the European Union for state aid.

In Germany, the data on tax concessions that are to be published under EU law are collected and forwarded in accordance with the regulation on the implementation of publication, information and transparency obligations in the Energy Tax and Electricity Tax Act (EnSTransV). Under this regulation, the customs administration collects and transmits data relating to energy and electricity tax concessions to the extent prescribed by the EU. The corresponding data can be accessed on the European Commission’s website on state aid.⁷

According to data from the Federal Statistical Office concerning the use of energy in manufacturing companies⁸, the electricity consumption of the “Mining and quarrying sector” (WZ 08-B) totalled 5,847,324 MWh in 2022. Multiplied by the electricity tax tariff of €20.50/MWh without taking account of possible concessions, this figure results in an electricity tax revenue of €120 million.

The companies in the natural resources extraction industry are generally entitled to relief under Section 9b StromStG as companies of the manufacturing industry. In 2022 (also in 2023), the tax relief amounted to EUR 5.13/MWh (25%).  In relation to the theoretical tax burden mentioned above, this leaves a tax liability of around EUR 90 million or EUR 15.37 electricity tax per MWh after deduction of the tax relief under Section 9b StromStG. The second stage of the relief is the so-called peak compensation according to Section 10 StromStG (until the end of 2023). This is calculated individually for each company depending on the electricity consumption and the pension insurance contributions paid and amounts to a maximum of 90% of the remaining electricity tax. In the absence of individual company figures, a flat-rate relief of 50% of the remaining tax burden can be assumed for all extractive companies as a result of the peak equalisation.

This estimate indicates electricity tax payments from the extractive sector of about €50 million.⁹

Financial aid as part of the energy cost reduction programme

The Energy Cost Reduction Programme (EKDP) ran from 15 July to 31 December 2022.¹⁰ As part of the EKDP, the government was able to pay subsidies to particularly affected energy-intensive industries for the months of February to December 2022 to cover increased natural gas and electricity prices. The basis under state aid law is the European Commission’s Temporary Crisis Framework for state aid to support the economy in the wake of the Russian war of aggression against Ukraine (EU Crisis Framework). Companies in some natural resources sectors¹¹ are among the eligible economic sectors that were able to apply for grants of up to €25 million per company until 31 December 2022. However, extractive companies were excluded from the maximum funding level of €50 million per company under state aid law. A total of EUR 2.4 million was paid out to 30 extractive companies.

Subsidies in the German hard coal industry 2022 – 2023

Federal Ministry of Finance (BMF) (2023): 29. Subsidy Report. URL: https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/29-subventionsbericht.pdf?__blob=publicationFile&v=8 (Accessed on 14 September 2023). Own presentation.

Subsidies for the sale and closure of German hard coal from 2017 to 2023 (Federal Government amounts)

BMF (2023): 29th Subsidy Report. Own representation.

Adaptation payments from 2017 to 2023 (Federal Government amounts)

BMF (2023): 29th Subsidy Report. Own representation.

¹ Pumping out/purifying and regulating the mine water that rises even after mining has ceased, in order to avoid contact with higher, drinking water-bearing layers.

² Pumping off surface water in the terrain depressions created by mining to prevent flooding and waterlogging.

³ Purification and monitoring of groundwater in the area of former mining operations, especially coking plants.

⁴A comparable model for making adaptation payments is also planned to cushion the social consequences of phasing out coal mining. See Effects of the energy transition for more information on phasing out coal mining.

⁵ European Commission (2024): State aid. URL: https://competition­policy.ec.europa.eu/state­aid_en (accessed 5 April 2024).

⁶The Federal Government (2024): Keeping energy affordable – electricity price package for manufacturing companies. URL: https://www.bundesregierung.de/breg-de/aktuelles/strompreispaket-energieintensive-unternehmen-2235760 (accessed on 26 June 2024).

⁷European Commission (2024): Public search in the state aid transparency database. URL: https://webgate.ec.europa.eu/competition/transparency/public/search (accessed 26 June 2024).

⁸ Destatis (2022): Table 43531-0002. URL: https://www­genesis.destatis.de/genesis/online (accessed 3 April 2024).

⁹ It should be noted that, under certain conditions including the generation of renewable energy and highly efficient combined heat and power (CHP) systems under 2 megawatts, producers of their own energy are exempt from electricity tax.

¹⁰ German Agency for Economic Affairs and Export Control (BAFA) (2024): Energy Cost Reduction Programme. URL: BAFA – Energy Cost Reduction Programme (accessed 26 June 2024).

¹¹ By economic classification: 0510 Coal mining, 0620 Extraction of natural gas, 0710 Iron ore mining, 0729 Other non-ferrous metal mining, 0811 Quarrying of natural stone, limestone, gypsum, chalk and slate, 0891 Mining of chemical and fertiliser minerals, 0893 Extraction of salt, 0899 Mining and quarrying activities not specified elsewhere.