Europe in crisis mode: What will become of climate policy?
Europe in Crisis Mode
With the war in Ukraine, energy shortages and global warming, Europe is facing several crises at once. Politicians and business leaders are challenged to act quickly – without neglecting long-term objectives. This task entails conflicting goals: more social policy can mean less climate protection. How can dependence on fossil raw materials be reduced without causing economic and social upheaval? What role can market instruments such as European emissions trading play in the transformation process and how can they be embedded in a socially acceptable way? The panel participants discussed these and other questions on 16 September 2022 in the ZEW event series “First-Hand Information on Economic Policy” as of the „Dialogue on the Economics of Climate Change“. ZEW President Professor Achim Wambach, together with Professor Sebastian Rausch, head of the Research Unit “Environmental and Climate Economics”, welcomed two discussion partners from business and politics: Dr. Franziska Brantner, Member of the German Bundestag and Parliamentary State Secretary at the Federal Ministry for Economic Affairs and Climate Action, and Saori Dubourg, member of the board of executive directors at BASF SE.
At the beginning of the discussion, which was attended by around 130 guests, Wambach wanted to know whether the Ukraine war and the energy crisis were standing in the way of climate protection. From a scientific point of view, economist Sebastian Rausch referred to the oil crisis in the 1970s: Even then, it had become clear that rising energy prices had the potential to trigger social upheavals: “Climate protection is potentially in conflict with economic and social policy,” said Rausch. In the 2000s, cheap natural gas as a bridging technology would have combined economic efficiency and climate protection – in theory. In theory, because what was actually needed from the political side was “greater diversification, which would also have been more expensive.” Ultimately, however, the “crisis can also be seen as an opportunity” to create to a more sustainable future with renewable energies, says Rausch.
Risks and Opportunities
Seeing the crisis as an opportunity – this is difficult for parts of industry in view of the high costs. Saori Dubourg described the current situation in the energy-intensive economy: large parts of the basic materials and cement industries can no longer pay the gas prices, plants have had to stop production. “Deindustrialisation has already begun,” Dubourg said. Now businesses and politics have to think strategically about medium- and long-term scenarios, linking technologies and the clean energy transition. “We need to move from reaction mode to action mode.” All participants in the discussion agreed that one way to advance climate protection in the long term is to establish a second emissions trading system that puts a price on pollutant emissions in the transport and buildings sectors in the EU. Currently, 60 per cent of European CO2 emissions are still unpriced. Rausch emphasised that this lack of CO2 pricing in the EU comes at a high cost: 2.8 per cent of European consumption is lost if the second emissions trading system is not introduced. Negotiations are currently underway at the European level. But while Sebastian Rausch sees the second emissions trading scheme as a necessary prerequisite for the path to climate neutrality and Saori Dubourg pleads for “planning security”, Franziska Brantner points to the concerns of citizens: “We should not underestimate that the acute problem is how to get through the winter well. The federal government supports the second emissions trading system, but citizens and companies must first get through the crisis well, said Brantner. In addition, many things are being set in motion – processes are being speeded up, as in the debureaucratisation of the use of photovoltaic plants and the acceleration of planning procedures for wind power plants. Brantner also mentioned one of the two planned LNG terminals in Wilhelmshaven, the planning for which began in the spring and which will go into operation at the beginning of next year: “Half a year is pretty fast by German standards,” said Brantner.
Is Germany facing Deindustrialisation?
What happens if the costs do become too high? Which segments of BASF would then migrate, Wambach asked Saori Dubourg. Most at risk is the beginning of the value chain, for example the steel, cement and chemical industries, which have a massive demand for gas. Permanent production stoppages cannot be ruled out: Germany will have to import massively in the future – if cost pressure remains the same – and the international competitiveness of Germany as an industry hub is at risk. “Germany is in by far the most difficult situation,” said Dubourg. All discussants see increased cooperation within the EU as a way to reduce dependence on energy imports: “We have great energy potential within the EU,” said Brantner. In countries like Estonia, Denmark or Lithuania, investors are willing to invest in wind farms, but they need the infrastructure to bring the electricity to us. We are now working on that at full speed. And Rausch also sees Spain, for example, as an important player when it comes to importing green hydrogen within Europe.