State Subsidies and Tax Concessions

Latest Update: September 2023

The payments made by extractive companies to government agencies (see Revenues generated) 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 Subsidies for the sale and closure of hard coal and Adaptation payment) is the only subsidy that specifically relates to natural resources sector. This financial help provides subsidies for the sales of hard coal, compensation for bottlenecks resulting from capacity adjustments and adaptation payments (APG) for socially-acceptable personnel reductions in the sector.

Companies in the natural resources sector outside of hard coal can benefit from additional financial help without a specific link to the natural resources sector (see Transparency of state financial aid and support).

An example is concessions granted by the State in respect of energy and electricity taxes for manufacturing companies (see Concessions for electricity and energy taxes).

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. According to this report, only directly budget-relevant subsidies (financial aid) of the Federal Government and tax relief for private companies and economic sectors are recorded. Financial help at Federal State level can be seen in the subsidy reports of individual Federal States (see Annex 5 of the Subsidy Report of the Federal Government). 

Subsidies in the German hard coal industry 2021 - 2022

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 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 Hard Coal Mining Financing Law 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 2021, the amount of Federal aid for the sales of hard coal and mine closures amounted to €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 of 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 subject to approval by the EU on the basis of the European law on state aid 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 and finally determines the aid.

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.

Subsidies for the sale and closure of German hard coal from 2019 to 2022 (Federal Government amounts)

BMF (2023): 29th Subsidy Report. See detailed sources here, Own representation View Data

Adaption payments

Employees, who are at least 50 and 57 years old (underground workers and surface employees respectively) and who will lose their jobs before 1 January 2023 will receive adaptation payments (APG) for a maximum of five years as a bridging allowance until they are entitled to a pension insurance benefit.4 The adaptation payments reflect the commitment of the Federal Government and the coal-producing Federal States to social responsibility. In 2021 and 2022, the Federal Government granted adaptation payments totalling €60.6 million and €48.7, respectively.

Employees

The number of employees subject to compulsory social security contributions is declining. At the beginning of 2008, 32,803 persons were employed in hard coal mining. By the end of 2020 the number of employees had been reduced to 1,520 employees. This figure fell to 1,034 employees subject to social security contributions in the coal mining industry as at 3 December 2021 and to 1,022 again as at 30 September 2022. 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.

Adaptation payments from 2019 to 2022 (Federal Government amounts)

BMF (2023): 29th Subsidy Report. See detailed sources here, Own representation View Data

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 this 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. The EU uses the term state aid instead of the term subsidy and thus a legal definition that is different from the definition of the term “subsidy”.5 In this context, state aid is not only considered to mean direct financial grants to companies, debt relief or reduced-rate loans: it may also mean guarantees, tax reliefs or the provision of plots of land, goods, or services at special conditions which constitute an advantage for the respective company. In order to guarantee fair competition in Europe, the Treaties and corresponding secondary legislation determine the conditions under which such state aid is permissible. From 1 July 2016 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, (see Concessions for electricity and energy taxes)

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 natural resources sector 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 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. A part of these concessions is mandatory under the Energy Tax Directive (EU) 2003/96/EC of October 27, 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:
  • Tax relief for companies (§ 54 EnergieStG, § 9 b 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 so-called 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. The statutory relief provisions currently only provide for tax relief until the end of 2023.
  • Certain processes and procedures/manufacturer privilege (§ 9a StromStG, § 51 EnergieStG, §§ 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 natural resources sector. Where the concessions in the field of electricity and energy constitute state aid, these fall under the reporting and transparency obligations of the European Union for state aid (see Transparency of State Financial Aid and Support)

In Germany, tax concessions are published in accordance with the regulation on the implementation of publication, information and transparency obligations under EU law in the Energy Tax and Electricity Tax Ordinance (EnSTransV). Under this regulation, the customs administration may collect, process, store, transmit and delete data relating to energy and electricity tax concessions. The corresponding data can be accessed on the European Commission’s website on state aid.6 According to data from the Federal Office of Statistics concerning the use of energy in manufacturing companies7 the electricity consumption of the “Mining and quarrying sector” (WZ 08-B) totalled 5,985,002 MWh in total in 2021. Multiplied by the electricity tax tariff without taking account of possible concessions this figure results in an electricity tax revenue of €123 million.
The extent of the concessions8 granted to natural resources sector companies reporting under EnSTransV is between €5 and €11 million9 for the general tax concessions pursuant to § 9b StromStG, €17.5 to €48 million for peak compensation pursuant to § 10 StromStG and between €5 and €11 million for plants eligible for tax concessions pursuant to § 3 EnergieStG.
This estimate indicates electricity tax payments from the natural resources sector of between €64 and €100.5 million10.

Financial aid as part of the energy cost reduction programme

The Energy Cost Reduction Programme (EKDP) ran from 15 July to 31 December 2022. 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. The amount of the grants is determined by any additional energy costs actually incurred and any operating losses (if any). In 2022 and until May 2023, only advance payments were made; the final subsidy amounts will be available by the end of 2023 following the final audit by the Federal Office of Economics and Export Control. Of the 1,712 applicants, 38 were from the natural resources sectors eligible for funding.

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.

4 A comparable model for making adaptation payments is also planned to cushion the social consequences of phasing out coal mining. See Effects of energy transition and the structural change on the extraction of natural resources in Germany for more information on phasing out coal mining.

5  European Commission (2023): State aid. URL: https://competition-policy.ec.europa.eu/state-aid_en (Accessed on 14 August 2023).

6 https://webgate.ec.europa.eu/competition/transparency/public/search

7 Destatis (2023): Table 43531-0002. URL: https://www-genesis.destatis.de/genesis/online (Accessed on 14 August 2023)

8 Only benefits exceeding €500,000 per year, company and reason for the relief; information given for 2021, accessed on 1 September 2023

9 The classification in the European Union State Aid Register is based on the following brackets €0.5-€1 million; €1-€2 million; €2-€5 million; €5-€10 million; €10-€30 million; and > €30 million. The amounts stated here, are the lower and upper limits of each bracket.

10 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 and exemptions in accordance with § 9 a (processes and methods using high amounts of electricity) or § 51 EnergieStG are not included in the EU state aid database. Furthermore, companies benefiting from concessions below the threshold of €500,000 are not listed in the EU State Aid Register. Therefore, the actual electricity tax payments are lower.

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.

STATE SUBSIDIES AND TAX CONCESSIONS

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Glossar

In Federal States in which legislation does not include an excavation law and the State-level Nature Conservation Law does not apply to the extraction of non-energetic, ground-based natural resources in the context of dry excavations, this type of natural resource extraction falls within the scope of the relevant state building regulations.

Legal limitations also exist: State building regulations apply to the excavation of solid rock (limestone, basalt, etc.), for example, in quarries with an area of up to 10 hectares (ha) in which no blasting is carried out. In the event that this area is exceeded, or if water bodies are formed after completion of the extraction operations, the German Federal Immission Control Act (BImSchG) and/or Water Resources Act (WHG) are applicable.
In Bavaria and North Rhine-Westphalia, the above-ground excavation of non-energetic, ground-based natural resources in the context of dry excavations is determined at state level by the existing excavation laws (AbgrG). For the excavation of solid rock (limestone, basalt, etc.) in quarries where blasting does not occur, the AbgrG applies to sites with an area of up to 10 ha. In the event that this area is exceeded, or if water bodies are formed after completion of the extraction operations, the German Federal Immission Control Act (BImSchG) and/or Water Resources Act (WHG) are applicable. In the other Federal States, this type of natural resources extraction is regulated by the respective state building regulations or by the state-level nature conservation laws.

In general, the AbgrG applies to those raw materials the excavation of which is not directly subject to mining law or the mining authorities. These raw materials include (in particular) gravel, sand, clay, loam, limestone, dolomite and other rocks, bog mud and clays. However, the jurisdiction between AbgrG and mining law can vary from case to case in the case of certain raw materials, such as quartz gravels. The requested authority must always verify its own jurisdiction in each case. The AbgrG also encompasses surface area usage and the subsequent rehabilitation of the area.
The German Federal Immission Control Act (BImSchG) is the most important and practice-relevant law in the field of environmental law. It constitutes the basis for the approval of industrial and commercial installations. In the natural resources extraction industry, quarrying companies must have approval to extract stones and earth. Every quarrying area of 10 hectares or more must undergo a full approval procedure, including public participation and UVP (environmental impact assessment). A more simplified approval procedure is used for quarrying areas of less than 10 hectares.

The sphere of responsibility for the legal immission control approval procedure is fully specified in the Immission Control Acts of the Federal States. The Federal States are tasked with the administrative enforcement of the approval procedure. Each individual state’s Environment Ministry – the highest local immission protection authority – usually bears the responsibility for this procedure. Subordinate authorities include regional councils, district authorities and lower-level administrative authorities. Administrative jurisdiction generally lies with the lower-level administrative authorities.
The GDP measures the value of goods and services produced domestically (creation of value) within a given period (quarter, year). The Federal Office of Statistics calculates the GDP as follows: production value minus intermediate consumption = the gross value added; plus taxes on products and minus subsidies = GDP
The gross value added is calculated by deducting intermediate consumption from the production values, so it only includes the value added created during the production process. The gross value added is valued at manufacturing prices, i.e. without the taxes due (product taxes), but including the product subsidies received.

During the transition from gross value added (at manufacturing prices) to GDP, the net taxes (product taxes less product subsidies) are added globally to arrive at an assessment of the GDP at market prices’. Source: Destatis
The planning approval procedure under mining law is used for the approval procedure of a general operating plan for projects which require an environmental impact assessment (§§ 52(2a), in conjunction with 57 a of the BBergG).
There are different definitions and methodological approaches at the international as well as at the national level as to what subsidies are and how they are calculated. According to the definition of the German government’s subsidy report, this report considers federal subsidies for private companies and economic sectors (ie grants as cash payments and tax breaks as special tax exemptions) which are relevant to the budget. Subsidies at the federal level can be viewed via the subsidy reports of the federal states (see Appendix 5 of the German government subsidy report).
In compliance with § 68(1), Water Resources Act (WHG), the excavation of landowners’ natural resources such as gravel, sand, marl, clay, loam, peat and stone in wet extraction operations requires a planning approval procedure. The reason for this is that groundwater is exposed in wet extraction, resulting in above-ground water. The planning approval procedure is implemented by lower-level water authorities.

The procedural steps of the planning approval procedure are governed by the general provisions of §§ 72 to 78 of the Administrative Procedures Act (VerwVfG). Within the meaning of § 68(3), nos. 1 and 2 of the WHG, the plan may only be established or approved if an impairment of the common good is not to be expected and other requirements of the WHG as well as other public-law provisions are fulfilled.