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.
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.
Subsidies for the sale and closure of German hard coal from 2019 to 2022 (Federal Government amounts)
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)
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.
- 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)
Financial aid as part of the energy cost reduction programme
1Pumping 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.
2Pumping off surface water in the terrain depressions created by mining to prevent flooding and waterlogging.
3Purification 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 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).
7Destatis (2023): Table 43531-0002. URL: https://www-genesis.destatis.de/genesis/online (Accessed on 14 August 2023)
8Only benefits exceeding €500,000 per year, company and reason for the relief; information given for 2021, accessed on 1 September 2023
9The 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.
10It 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.
11By 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.