“Climate Protection Must Be Worthwhile”

What contribution must municipalities, the federal government and the EU make in order to achieve the climate targets? Which instruments are effective and which are counterproductive? And what can each and every one of us do to make a difference? These are some of the questions ZEW President Professor Achim Wambach addresses in his latest book “Klima muss sich lohnen” (“Climate Protection Must Be Worthwhile”). At the #ZEWBookTalk on 4 July 2022, the economist gave a preview of his book and presented its core theses. In his presentation, Wambach provided the around 55 participants with an overview of the various dimensions of climate policy. Furthermore, he pleaded for more economic rationality in the choice of appropriate instruments, as markets and mechanisms operating in the background determine the effectiveness of individual climate policy measures. The way they operate, however, is less obvious than often assumed.

“In no other area of politics does the public discourse differ so much from the views of economists as in the debates on climate policy”, said Wambach, opening his talk. This observation prompted him to write a book that argues for an economic perspective, evaluating measures based on their climate policy impacts and taking into account the economic interdependencies of the various instruments.

Wambach demonstrated his standpoint regarding several measures currently under discussion, including the proposal to install solar panels on all buildings in a city. “Equipping roofs with solar panels alone has no positive effect on climate protection in Europe,” says Wambach. This is because electricity generation is part of the European emissions trading scheme. If the city uses less conventional electricity after installing solar panels, the electricity producer needs fewer emission certificates, which would then be bought by another European electricity producer or industrial company, because the total amount of certificates is capped. Nevertheless, according to Wambach, solar panels can be economically beneficial when other energy sources are more expensive. However, the decision should be based on economic considerations rather than on climate policy reasons.

The same mechanism can be observed for Germany’s coal phase-out: “From a climate policy perspective, the planned delay of the coal phase-out is not a problem, as coal-fired power is covered by certificate trading,” Wambach explains. “If we use more certificates, the cap ensures that others will use less.”

Wambach supports the expansion of the EU Emissions Trading Scheme as a key instrument. “Not introducing a second EU emissions trading scheme for the buildings and transport sectors would be a step backwards in climate policy.” The European Parliament and the Council still have to agree on the final version of the planned reform. At the same time, Wambach stressed that Europe is responsible for less than ten per cent of global CO2 emissions and that climate policy must be treated as a global issue. He considers the establishment of a climate club and the implementation of replicable climate policy measures to be the most important levers for solving climate policy problems. These measures also require additional investment in innovation at the federal level.

The book “Klima muss sich lohnen – Ökonomische Vernunft für ein gutes Gewissen” will be published (in German only) on 15 August 2022 by Herder Verlag.