A package of measures to combat climate change has cleared the final hurdle in becoming law in Germany. The upper house of parliament approved core elements of the deal on Friday, paving the way for the landmark measures to take effect at the beginning of 2020. But what are the main areas of change?

CARBON PRICING

Carbon pricing is a cornerstone of the climate package because when the price is set high enough, it can be an effective way to cut carbon pollution. Starting in 2021, a ton of carbon dioxide will incur a $28 dollar levy, which will climb to $61 by 2025. Both these pricing levels are significantly higher than the original proposal, which was roundly criticized as being too low to curb climate change. 

This tax will apply to emissions from transportation and heating. Companies will be hit with the surcharge, but the cost will likely be passed along to consumers in the form of higher gas, diesel and heating costs.

COMMUTER ALLOWANCE

The CO2 levy is expected to add around about nine cents to the price of a litre of fuel, but the government is helping offset the higher cost by increasing the commuter allowance which Germans can claim as a deduction on their income taxes.

Starting in 2021, the commuter allowance will be 33 US cents per kilometer for the first 20 kilometers, with anything above that claimed at 39 cents per kilometer. The allowance climbs again in 2024. This will especially help those living in rural areas with limited public transport options. 

RAIL TRAVEL

Cheaper train tickets will be one of the first tangible impacts of this climate package. Starting in 2020, the VAT on long-distance train tickets will plunge from 19 percent to seven percent. This will obviously make rail travel a more economically attractive form of transportation. The government is also allocating billions of dollars toward rail improvements.

AVIATION TAX

As rail gets cheaper, flying will get more expensive: from next April, the aviation tax will be hiked on every flight out of Germany. Short-haul trips will be hit hardest, the tax rising by 75 percent to about $14 per ticket. Mid- to long-haul flights will go up about 40 percent. 

The government is hoping this may encourage travelers to choose green ways to travel. According to the International Air Transport Association, flying accounts for about two percent of the world's global carbon emissions.

LOWER ELECTRICITY COSTS

Electricity prices are also set to be lowered through a reduction in the EEG surcharge. This green levy, which was introduced in 2000 and has been modified several times since, is added to electricity bills in order to fund projects harnessing renewable energy sources like wind and solar.

In 2018, the EEG surcharge made up 23 percent of the average household's electricity bill, and the lawmakers have chosen to relieve some of this burden as part of the wider ecological package. There will also be tax deductions for certain environmentally-friendly home improvements, like replacing oil-fired central heating systems.

GREEN BONDS

Green bonds aren't part of the climate package, but they could be used to help Germany fund its climate-cutting measures. The federal government announced on Thursday that it will sell about $11 billion of bonds starting in mid-2020. These will be issued at the same time as conventional bonds with the same maturity and coupon, but the money generated will be exclusively allocated to environmentally friendly projects.