Climate Policy and Energy Transition: Challenges and Prospects

Making the energy turnaround secure and affordable - Federal Minister of Economics speaks at the ZEW

Climate emergency, Green Deal, climate conference and most recently the climate package: Germany is serious about climate policy. On 13 January 2020, Peter Altmaier, Federal Minister of Economics and Energy, explained at the ZEW Mannheim where the Federal Republic stands in terms of climate policy and energy system transformation and how it should continue. Within the framework of the "Dialogue on Climate Economics" Altmaier spoke at the ZEW event series "First hand information on Economic Policy". Speaking to about 220 guests from business, science and society, the main topics were how to shape a successful energy transition in Germany, how democratic climate policy is implemented nationally and internationally and what role Germany has to play in this process.

"The transformation of our energy system is a challenge, similar to the transformation of the economy into the age of digitalization," said the Minister at the beginning of his presentation entitled "Climate Policy and Energy Transition: Challenges and Prospects". "We are currently turning an established energy system upside down within two generations and bringing more added value back to more rural regions". According to Altmaier, the main challenge is to ensure security of supply and affordability.

Between energy system transformation and the principles of a market economy

Altmaier, who was unable to travel to Mannheim in person due to a foot injury, was transmitted live from Berlin to the packed ZEW main hall. He emphasised that a resilient energy supply with renewable energies would be possible for Germany as an industrial nation if the general conditions were right. Therefore, he said, it was important to anchor market economy principles within the energy transition. Germany's competitiveness and the compliance with climate targets must go hand in hand. In other words, business models will be successful in the future if they take into account the energy system transition and climate protection - both a challenge and an opportunity for Germany as a business location.

The climate protection policies of past years are already having an effect: "CO2 emissions are falling drastically, while coal-based electricity is making way for renewable energies," said Peter Altmaier.  Until now, the energy transition has been an electricity transition, and as it progresses, the desirable and the feasible will have to balance each other out. A simultaneous phase-out of coal-fired and nuclear power is therefore not sensible for the Minister. "Germany is on target in the expansion of renewable energies. The German economy has grown by around 25 percent since 2005 and yet CO2 emissions have fallen by 13 percent," the politician explained.

"Energy turnaround only works if we get the horsepower on the road"

However, on closer inspection, this is not even half the way. With a view to the so-called "Green Deal" of the EU Commission under Ursula von der Leyen, Germany has agreed to be greenhouse gas neutral by 2050 - this goes far beyond the electricity turnaround and presents the country with new challenges. The energy sector and industry are well positioned for these goals. However, the sectors of transport and energy efficiency of buildings have some catching up to do. "We have opted for a market-based instrument to meet the targets and ensure competitiveness: emissions trading", the Federal Minister of Economics explained.

Germany must also become more climate-neutral in the area of mobility. This would be achieved by creating appropriate incentives through increased competition between the various forms of mobility. On this point, Altmaier spoke out in favor of expanding hybrid electric flying. At the same time, he emphasized that mobility must still be affordable, as it represents a piece of quality of life. "Together with industry and science, we are taking this path with new innovations and ideas, not only in theory, but increasingly in practice. The energy turnaround will only succeed if we also get the horsepower on the road," said Altmaier. His central message: "Continue to drive forward the transition of energy systems in a safe, affordable and environmentally compatible manner.

Germany plays a pioneering role internationally

Following the lecture, ZEW President Prof. Achim Wambach opened the exchange with the Federal Minister of Economics. At the beginning of the discussion, the ZEW President emphasised that the energy turnaround will be felt more in the future and raised the question whether therefore the government should not show more initiative to open the population to new climate and energy policy instruments. On this point, Altmaier pointed out that a solution had to be found together with all participants. In the current social discourse - for example about the faltering expansion of wind power on land - emotional arguments often prevail over factual reasons.

When asked whether there was not a need for more international solutions to climate change, the Minister explained that Germany was a prime example worldwide. "If we protect climate and resource consumption, the market economy will help to raise growth potential in the world. Only if Germany retains its competitiveness and moves forward successfully as an industrial and economic nation will climate policy efforts bear global fruit", Altmaier stressed.

Further questions from the audience entered the discussion: From the current climate policy perspective, should more consideration be given to the use of "Carbon Capture and Utilization" (CCU) and "Carbon Capture and Storage" (CCS)? What incentives does the political community offer to invest in energy from gas-fired power plants? What mechanisms can be used to make regulations more credible? Issues that require joint action by politics, business, science and society.