Electricity price compensation vs. industrial electricity price: How an EU rule undermines the German industrial electricity price

The great electricity price misunderstanding: Why politicians are deceiving the paper industry

Hygiene paper error: How an EU rule undermines the German industrial electricity price

The introduction of the new industrial electricity price was celebrated by politicians as a historic milestone – a liberating move intended to protect energy-intensive sectors, such as the production of hygiene paper, from international competition. However, behind these grand promises lies a massive problem under state aid law: the measure simply doesn't apply to the German paper and pulp industry. Those already benefiting from the established electricity price compensation scheme are excluded from the new funding pool due to strict EU regulations. Instead of the promised rescue, an industry already suffering from massive production declines and enormous energy costs is confronted with completely unrealistic political communication. This article examines why political aspirations and economic reality diverge so drastically regarding the industrial electricity price, what danger this poses to Germany as a business location, and what the paper industry truly needs now to overcome its structural crisis.

When political communication and economic reality diverge

The announcement of the German industrial electricity price in 2025 was celebrated by politicians as a historic breakthrough for Germany as an industrial location. Federal Minister for Economic Affairs Katherina Reiche (CDU) spoke of comprehensive relief for energy-intensive industries, and the Federal Ministry for Economic Affairs and Energy (BMWi) cited hygiene paper manufacturers as prime examples of the new instrument's effectiveness. However, this portrayal is factually inaccurate on a key point – and the consequences of this inaccuracy for the affected industry are significant.

One instrument for 91 sectors – but not the same for all

The industrial electricity price came into effect retroactively on January 1, 2026, and runs until the end of 2028. The European Commission approved aid totaling €3.8 billion, with which the state will cover the difference between the market price and a target price of 5 cents per kilowatt-hour for eligible companies. This is based on the European state aid framework known as the Clean Industrial Deal State Aid Framework (CISAF), which was adopted by the European Commission in June 2025.

Eligibility for the industrial electricity price is determined by the so-called KUEBLL list – the EU's climate, environmental and energy aid guidelines. This list covers approximately 91 economic sectors, including companies from the chemical, glass, metal, and paper industries. On paper, the paper industry appears to be favored – and this is precisely where the misunderstanding begins.

The actual relief provided does not depend solely on whether a company is on the list. According to EU state aid rules, the instrument is designed to apply only to 50 percent of a company's annual electricity consumption, and then only as a subsidy amounting to a maximum of 50 percent of the wholesale electricity price. In practice, this results in real relief that is significantly lower than the 5 cents per kilowatt-hour figure discussed in the public debate. Anyone wishing to combine this instrument with, or even replace, electricity price compensation will encounter a fundamental obstacle under state aid law.

Electricity price compensation and industrial electricity price: Two worlds, one industry

The crucial point lies in the relationship between the new industrial electricity price and the existing electricity price compensation (SPK) mechanism. The SPK is a long-established instrument that provides energy-intensive industrial companies with partial compensation for the indirect CO₂ costs in the electricity price resulting from the European Emissions Trading System (EU ETS). These indirect costs arise from the fact that electricity producers must purchase CO₂ certificates, which is passed on to industry through higher electricity prices. Germany has been using this compensation mechanism since 2013.

The paper and pulp industry is among the sectors covered by the electricity price compensation scheme. For this industry, the scheme remains the primary and more economically relevant relief instrument. The reason: per megawatt-hour, the relief provided by the scheme is generally higher than the subsidy via the industrial electricity price. Against this backdrop, a complete switch to the new industrial electricity price appears economically unattractive for most paper manufacturers.

Furthermore, there is a prohibition on cumulation under state aid law. The EU Commission's CISAF framework explicitly prohibits the simultaneous use of electricity price compensation and the industrial electricity price for identical electricity volumes. Companies applying for the industrial electricity price are therefore excluded from the industrial electricity price for the same electricity consumption. While there is formally an option – a company can allocate different plants or electricity volumes to different instruments – the separation is administratively complex and only economically advantageous in exceptional cases. The BMWE's assertion that hygiene paper manufacturers benefit from the new instrument is therefore misleading: For companies already receiving relief under the industrial electricity price, the industrial electricity price is de facto not a relevant relief instrument.

Energy intensity as a location problem: The structural situation of the paper industry

To understand the implications of this clarification, one must consider the energy policy situation of the German paper and pulp industry. With an annual energy demand of over 50 terawatt-hours, the sector is the third-largest industrial energy consumer in Germany, after metal and chemical production. In some production stages, energy accounts for 20 to 30 percent of total costs. This structural dependency makes the industry extremely sensitive to energy price fluctuations.

The past few years have painfully exposed this vulnerability. In the first half of 2023, production plummeted by 21 percent, and sales by 25 percent. The downward trend continued in 2025: Total production fell by a further 2.5 percent year-on-year to 18.7 million tons, and industry sales declined by 5 percent. The situation is particularly dire for graphic papers, whose production in Germany fell by a dramatic 16.7 percent in 2025 – more than twice the European average of 7 percent. This discrepancy is symptomatic: High German energy prices are accelerating structural decline far more than in comparable European countries.

The effects on the production structure are already visible. By the end of 2025, only 128 paper mills with 216 machines were operating in Germany – five years earlier, there were still 152 mills with 260 paper machines. This represents a decline of more than 15 percent in production capacity within half a decade. The number of employees fell from 45,600 to around 41,000 during the same period. These figures are not mere statistical noise, but rather an expression of a gradual deindustrialization, exacerbated by inadequate energy policy frameworks.

Carbon Leakage and the Limits of Funding Instruments

The instrument of electricity price compensation is based on a clear regulatory objective: preventing so-called carbon leakage. This refers to the relocation of industrial production to countries with less stringent climate regulations, which paradoxically leads to an increase in global CO₂ emissions because energy use elsewhere is less efficient. The electricity price compensation mechanism is intended to protect energy-intensive industrial companies in international competition without undermining the climate protection incentives of the EU Emissions Trading System (ETS).

The EU has significantly expanded this logic recently. In December 2025, the European Commission fundamentally revised its ETS state aid guidelines, resulting in Germany being permitted to extend electricity price compensation from 11 to 31 eligible sectors. This is due to the continued rise in CO₂ certificate prices, which have since climbed to around €82 per certificate, thus considerably increasing indirect electricity costs for industry. The maximum support rate was also increased from 75 to 80 percent.

For the paper industry, this further development of the SPK (Supplementary Price Compensation Scheme) is fundamentally positive. The German Paper Industry Association (DIE PAPIERINDUSTRIE) did not primarily call for the industrial electricity price as a relief mechanism, but rather for the permanent continuation and expansion of electricity price compensation beyond 2030. This differentiated position of the industry association underscores that the paper industry distinguishes very precisely between the available instruments – a nuance that apparently did not receive sufficient attention in the public communication of the Ministry of Economic Affairs.

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Distortion of competition in European comparison

The energy policy debate in Germany should not be conducted in a national vacuum. A look at neighboring European countries reveals the extent of the competitive distortion suffered by the German paper industry. In Austria, one of the most important export markets for German paper manufacturers, comparable producers pay 50 percent less for electricity, according to a study by the Austrian Institute of Technology (AIT), while grid costs are 75 percent higher than in Germany. This cost difference is structural in nature and cannot be fully offset in the short term by any single subsidy instrument.

Northern European competitors – particularly in Finland and Sweden – traditionally benefit from lower energy prices, favorable grid fees, and an energy infrastructure more geared towards industrial applications. German paper manufacturers thus find themselves caught in a pincer movement: while production costs rise due to high energy prices, demand for graphic papers is eroding due to structural changes in the media landscape. Both factors are occurring simultaneously and reinforcing each other.

The consequence is an accelerated shift in market share in favor of foreign competitors. While the production of graphic papers in Germany fell by 16.7 percent in 2025, the European decline was only 7 percent. This difference is a direct reflection of Germany's competitive disadvantage – and it is further exacerbated by flawed energy policy communication that suggests a relief effect that does not materialize.

Energy policy communication and its consequences

The flawed public presentation by the Federal Ministry for Economic Affairs and Energy (BMWi) has concrete consequences that go beyond mere inaccuracy. When hygiene paper manufacturers are publicly cited as examples of the effectiveness of the industrial electricity price, even though these companies operate under the electricity price compensation regime and cannot actually utilize the industrial electricity price for their electricity volumes relevant to the subsidy program, a distorted picture of the actual subsidy landscape is created.

This has practical implications. Companies planning their energy procurement strategies based on this information could arrive at incorrect assessments regarding their eligibility for subsidies and their financial impact. Furthermore, inaccurate communication undermines the industry's trust in the federal government's energy policy competence – trust that is urgently needed given the existing planning uncertainty. Association President Hans-Christoph Gallenkamp stated it unequivocally: The future of Germany as an industrial location depends on competitive framework conditions and long-term planning certainty.

The industrial electricity price itself is also subject to significant restrictions that are often overlooked in public debate. For many companies, the actual relief amounts to only one cent per kilowatt-hour or less, since only 50 percent of consumption is subsidized and the 5-cent minimum price is applied only to this portion. In addition, there is the obligation to reinvest at least 50 percent of the received subsidy in decarbonization measures. The industrial electricity price is therefore less of an immediate liquidity instrument than a long-term incentive for transformation – an important function, but one that differs significantly from its political rhetoric.

What the paper industry actually needs

A sound energy policy analysis of the situation of the German paper and pulp industry leads to a clear action agenda that differs significantly from the public communication of the Federal Ministry for Economic Affairs and Energy (BMWi). The industry association has specifically outlined this agenda in its position paper for 2025/2026.

The top priority is the permanent consolidation and expansion of electricity price compensation. This compensation is the most economically effective instrument for the industry because it directly offsets the indirect CO₂ costs, which represent the greatest structural burden for the paper industry. Limiting the duration of this instrument jeopardizes long-term investment planning. At the same time, the thresholds for network charge reductions according to Section 19, Paragraph 2 of the Electricity Network Charges Ordinance (StromNEV) – specifically the threshold of 10 gigawatt-hours – must be maintained to ensure the relief effect for medium-sized paper mills.

Furthermore, the industry is demanding competitive industrial grid fees beyond 2028 and the permanent extension of the reduced electricity tax. These demands share a common goal: they aim for structural, lasting cost reductions, not temporary subsidies. While the industrial electricity price may be a useful bridging instrument for certain sectors, it does not provide significant relief for the paper industry, which is already protected by electricity price compensation, as long as the prohibition on cumulation remains in effect and the SPK (Swiss Federal Electricity Commission) offers greater relief.

Structural change as an ongoing task: Beyond the energy price question

Regardless of the energy policy debate, the German paper and pulp industry is facing a profound structural transformation that extends beyond the energy price problem. Demand for graphic papers is in a secular decline, driven by the digitalization of the communications and media sector. This decline is irreversible and cannot be halted by any energy policy.

In contrast, the packaging and hygiene paper sectors offer more stable demand prospects, although competitive pressure from abroad is also considerable here. Capacity utilization across the entire industry was only 85 percent in 2025 – five percentage points below the 2020 level and ten percentage points below the long-term average from 2000 to 2010. This structural underutilization is a serious warning sign, as it increases the fixed cost burden per production unit and further weakens the competitive position.

The paper industry is attempting to counteract this trend through efficiency improvements, investments in renewable energies, and the development of new product lines. However, this transformation requires investment capital and planning certainty – both of which are undermined by inadequate and misleading energy policy frameworks. An energy policy based on inaccurate representations cannot provide a sound basis for business investment decisions.

Precision as the basis of responsible economic policy

The paper and pulp industry in Germany is facing a serious structural crisis, characterized by high energy prices, distortions of international competition, and declining demand for graphic papers. It needs precise energy policy instruments tailored to its specific needs – not misleading communication that suggests a relief effect that does not materialize.

The industrial electricity price is an important economic policy instrument. For the approximately 2,000 companies that can actually claim it, it represents substantial support. However, for the German paper and pulp industry, which operates under the electricity price compensation scheme, it is not a relevant relief instrument in its current form – particularly due to the prohibition on cumulation of state aid and the economically more favorable SPK relief. Media reports that uncritically adopt the BMWE's (Federal Ministry for Economic Affairs and Energy) presentation contribute to misinformation and hinder a proper political debate.

What the industry needs instead is a reliable, sustainable development of electricity price compensation, competitive grid fees, and a consistent long-term energy strategy. These requirements may be less media-friendly than the announcement of a new instrument, but they reflect the economic reality of an industry for which electricity is not just a cost factor, but a vital location factor.

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