We Need More Efficient Climate Policy
OpinionZEW President Achim Wambach on Climate Policy
At her annual New Year’s address, the German Chancellor Angela Merkel renewed her commitment to climate action: “I will do everything in my power to ensure that Germany does its part – ecologically, economically, societally – to get climate change under control.” Climate policy is becoming increasingly important in Germany. In August 2019, the Cabinet passed the Structural Development Act for German coal-mining regions; three months later, it rolled out a new climate bill. What is more, federal and state authorities recently agreed on a timetable for phasing out coal.
The 2019 climate bill provides for carbon pricing in the transport and heating sectors through a national CO2 emissions trading system. Starting in 2021, a charge of 25 euros will be levied on each tonne of CO2 emitted from the burning of petrol, diesel, heating oil and natural gas. In the emissions trading system, a maximum level is set in accordance with the requirements of Germany’s climate targets. The system is a sensible way to induce companies, public institutions and private individuals to reduce emissions. In 2019, CO2 emissions in Germany decreased by seven per cent relative to 2018. The reason for this is the high CO2 certificate prices in the European emissions trading scheme (EU ETS), which made coal less competitive than gas.
In her New Year’s speech, Chancellor Merkel urged Germans to do “everything humanly possible to meet this challenge affecting all of humanity.” Merkel is right to stress that great efforts must be made. One crucial area of work is funding. Enacting ambitious climate policy is very expensive, which is why policymakers must steer clear of inefficient measures and abandon existing measures that have proven ineffective.
This is all the more reason to ask why Germany’s climate bill reduces the value added tax (VAT) for long-distance train travel. Trains run largely on electricity, whose production, insofar as it comes from coal or gas power plants, is subject to the EU ETS. Deutsche Bahn’s competitors – airlines, bus operators and drivers – all in one way or another foot the bill of the CO2 they produce. Intra-European flights are already subject to the EU ETS, while buses and cars that run on diesel or petrol will have to pay the price of CO2 as of 2021 and will be included in national emissions trading in the future. Hence, the preferential treatment that the VAT reduction gives trains can no longer be justified on the grounds of climate protection. A better approach is the already agreed promotion of railway infrastructure expansion because high CO2 prices are very likely to increase train use.
"Renewables are likely to hold their own on the market even without subsidies"
Another measure that is ineffective with regard to CO2 emissions is the promotion of renewable energy. In 2018, direct remuneration to the operators of renewable energy installations reached 32 billion euros, an all-time record. However, European electricity generation is part of the EU ETS. A country that produces additional electricity from renewables needs fewer certificates for electricity generation. But since the total number of allowances is fixed, the use of fewer allowances in one area entails the use of more elsewhere, which means that more CO2 is emitted in other sectors or elsewhere in Europe. This undermines the argument that the state promotion of renewables serves climate policy. This is not to say that more renewable energy is undesirable, of course. As CO2 prices rise, renewables are likely to hold their own on the market even without subsidies. Instead of funding renewables, the government should make it easier for private companies to invest in the expansion of wind power plants and electricity grids.
Imposing a speed limit s not an effective climate measure
The effectiveness of many of the “small” climate measures also seems doubtful in light of the EU ETS and carbon pricing. For instance, the recent discussions about imposing a speed limit of 130 km/h on German motorways were held with much enthusiasm. But while such a measure could perhaps be justified on the grounds that it lowers the risk of accident, it is not an effective climate measure. Diesel, petrol and electricity for cars are either already included in the EU ETS or will soon be subject to national carbon pricing and national emissions trading. But the resulting CO2 prices are enough to change behaviour. If someone still wants to drive at 180 km/h or own an SUV, he or she should be free to pay for it – perhaps by forgoing a flight to Spain. In a market economy, the freedom to decide which environmentally harmful behaviours to forgo should lie with the individual. CO2 prices and emissions trading ensure that these decisions collectively result in an adequate reduction in emissions.
This article was originally published in German in the daily Börsen-Zeitung on 24 January 2020.
