Important Step for Climate Protection

Today the Climate Cabinet presented its policy package for achieving the climate targets and further developing the energy transition. Professor Achim Wambach, president of the ZEW – Leibniz Centre for European Economic Research in Mannheim, comments.

“The pressure from the population has had an effect. Today’s Climate Cabinet proposals are an important step towards Germany making an effective contribution to international climate policy. On the table is the proposal to introduce CO2 pricing for oil, gas, petrol, and diesel in the form of a national emissions trading scheme, which ensures the economic principle that those who release more CO2 into the atmosphere have to pay for it accordingly. At the same time, capping the number of permits will ensure that climate policy goals are actually achievable in terms of emission reductions. The German government should now endeavour to ensure that not only national but also European emissions trading is extended to the transport and heating sectors. After all, going at it alone at the national level is only a temporary solution.
 
The proposed measures to reduce the financial burden on electricity consumption, such as the reduction of the Renewable Energy Sources Act (EEG) levy, are also a welcome sign. Having the energy transition result in positive effects on the climate will only succeed if, at the same time that utilising renewable energies in the electricity sector increases, this electricity is also available at favourable prices for electric mobility, heating and production. In other words, electricity from renewable energies must become cheaper in order to withstand the prices of climate-damaging oil, gas, petrol, or diesel.

The multitude of individual measures in the policy package is both a blessing and a curse. For example, for CO2 pricing to work properly as a central guiding instrument of the Climate Cabinet's policy package, it should not be watered down or even counteracted by supplementary support measures and additional interventions. This type of a multifaceted proposal should be rejected. Nevertheless, even with the introduction of such a CO2 pricing proposal, there are still plenty of reasons for complex economic policy interventions by the government in order to successfully implement the energy transition. Market imperfections such as financing restrictions in research and development, path dependencies, or the limited rationality of market participants should indeed be addressed by supplementary measures. Knowledge spillovers should also be taken into account for the development of innovative technologies. Considering the above, a good mix of instruments would therefore take into account external effects of various kinds, as well as market imperfections. Finally, it should also be clearly communicated to the public which instrument addresses which market imperfection. Only through such an allocation can the effectiveness and efficiency of the individual measures be carefully checked. After implementation, an evaluation should promptly take place in order to identify any unintended impacts and adapt the measures accordingly. The monitoring announced by the Climate Cabinet to continuously check whether the measures for climate protection are effective is therefore to be welcomed.”