Germany introduces tax cut and future fuel price cap to ease soaring pump prices

Amid an oil price surge above $100 a barrel caused by the Iran conflict and the war in Ukraine, Germany’s “Black-Red” coalition announced a two-part response. First, a 14-cent per litre reduction in the energy tax, combined with existing VAT relief, will lower fuel taxes by 17 cents per litre from October through December. Second, a floating price cap for gasoline and diesel will take effect in January 2027, with a specialised authority calculating the ceiling based on international prices, transport, storage, insurance, losses and a modest profit margin.

The tax rebate alone is projected to cost taxpayers roughly €2.5 billion, with half financed by the states, while the earlier May-June cut cost €1.8 billion. Economists, climate activists and the Greens have criticised the measures as costly, poorly targeted and insufficiently climate-friendly, calling instead for a windfall tax on oil-company profits.