The payments made by extractive companies to government agencies (see chapter 4) 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 chapter 6.a. and b.) 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 chapter 6.c.).
An example is concessions granted by the State in respect of energy and electricity taxes for manufacturing companies (see chapter 6.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. 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 2020
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.
In 2020, the amount of Federal aid for the sales of hard coal and mine closures amounted to €1,924.0 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 subsidies were cut by approximately 50% – and they 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). Furthermore, one-off subsidies amounting to €1,658.4 million were paid in 2020. These payments 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.
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.
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 drainage (1), permanent land subsidence (2) and groundwater purification (3)). 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 2017 to 2020 (Federal Government amounts)
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 due to the closing-down of mines or rationalisation measures, will receive an adaptation payment (APG) as an interim benefit for a maximum of five years until their entitlement to pension insurance becomes valid. The adaptation payment reflects the social responsibility of the Federal Government and the hard coal-producing Federal States. In 2020, the Federal Government guaranteed adaptation payments totalling €73.9 million.
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. 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 caused by mining the current adaptation payment guidelines will still apply until 2027.
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 2017 to 2020 (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 (4). 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 €500,000 or €100,000 per company, per benefit and per year, and the respective member state has to disclose this information on a detailed state aid website, including:
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.
- 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.
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. These data are available on the European Commission’s state aid website. (5)
According to data from the Federal Office of Statistics concerning the use of energy in manufacturing companies (6) the electricity consumption of the “Mining and quarrying sector” (WZ 08-B) was 6,067,221 MWh in total in 2020. Multiplied by the electricity tax tariff without taking account of possible concessions this results in electricity tax revenue of €124 million.
The extent of the concessions (7) granted to natural resources sector companies reporting under EnSTransV is between €7 and €14 million (8) for the general tax concessions pursuant to § 9b StromStG, €15 to €42 million for peak compensation pursuant to § 10 StromStG and between €5.5 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 €68 and €102 million. (9)
(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) European Commission (2022): Competition Policy. URL: https://www.infogeo.de/Infogeo/DE/Downloads/rohstoffsicherung_2008.pdf?__blob=publicationFile&v=2 [Accessed on 27 September 2022].
(6) Destatis (2022): Tables 43531-0001 and 43531-0002. URL: https://www.infogeo.de/Infogeo/DE/Downloads/rohstoffsicherung_2008.pdf?__blob=publicationFile&v=2 [Accessed on 20 December 2022].
(7) Only benefits exceeding €500,000 per year, company and reason for the benefit; information given for 2020 [Accessed on 27 July 2022].
(8) 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.
(9)It should be noted here that, under certain conditions (generation of renewable energy/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.