Germany cuts fuel tax, plans price cap in 2.5bn euro aid package

The German federal government and the states have agreed on a 2.5 billion euro relief package to lower fuel costs. From 1 October the energy tax on petrol and diesel will be cut by 14 cents per litre, which translates into roughly a 17-cent reduction at the pump once VAT effects are included. The measure runs until the end of the year and is split evenly between federal and state budgets.

Chancellor Friedrich Merz's coalition also announced plans to negotiate a price-ceiling mechanism with the oil industry, modelled on systems used in Luxembourg and Belgium, with the goal of making it operational by 1 January 2027. Finance Minister Lars Klingbeil said the EU Commission must accelerate work on a windfall-profit tax for oil majors.

“We need the EU Commission to get moving on the windfall-profit tax.”

The intervention comes after benchmark crude topped 100 dollars a barrel amid the Iran conflict, pushing the national average for E10 petrol to a record 2.286 euros per litre earlier this week. Diesel prices have also reached all-time highs.

Officials stressed that the final impact depends on how much of the tax cut is passed through to consumers, since pump prices also reflect crude costs, refining margins, transport and distribution expenses.