A clear, credible climate protection law is good for business, German expert says

In this politically uncertain world, the climate actually provides the greatest planning security in comparison to all economic forecasts. The clarity of climate science is therefore in principle an opportunity for politicians. It is on this basis that a very robust investment framework can be created. EPA-EFE/NUNO VEIGA [EPA-EFE/NUNO VEIGA]

In an interview with EURACTIV Germany, Karsten Neuhoff, a climate expert and professor, spoke about Germany’s hotly-debated climate protection bill, stressing that a clear regulatory framework with “clear and credible paths for reducing emissions” is attractive for businesses.

Karsten Neuhoff is the head of the climate department of the German Institute for Economic Research (DIW Berlin), a global research organisation that helps nations achieve low-carbon growth through research and analysis. Neuhoff is also a professor of energy and climate policy at the Technical University of Berlin. 

Mr Neuhoff, in a statement you wrote some time ago, you noted that the annual review by an independent panel of experts was the most significant step in the climate package. Such an evaluation is no longer part of the current draft. What does that mean?

We face the challenge that we have to implement measures much faster than before if we want to achieve our climate goals.

We achieved this in the 1990s, after [German] reunification. In some years, 4-5% of the apartments in the new federal states had been entirely renovated. This means that it is possible to increase our current rate by 0.7%, although we will need to implement well-structured measures.

What shocked me in recent years was that, despite the review of climate protection measures every two years, it turned out that climate targets had not been met. For me, this means that in the future, we will have to carry out reviews very frequently. A legislative period lasts four years, in which we need regular updates.

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It now appears that the carbon budgets attributed to specific sectors will be relaxed. Initially, fines were to be imposed if a ministry exceeded its budget, but now it should be possible to shift quantities of CO2 between sectors. Will this make the system more flexible, or will it be softened?

The sector targets are important because they set out responsibilities. A minister can thus coordinate measures for his sector. And accountability alone is already crucial so that ministers can be proud when they achieve their goal.

But I still think it makes sense for the CO2 budget to be exchanged between sectors, at least to a certain extent. It will provide us with an insight into how money is handled. There are also budgets for ministries or business units in companies. These must be clearly defined but can, of course, be adjusted over time.

Of course, the existing overall budget must continue to be adhered to.

The starting price for CO2 should be €10 per tonne, even though many researchers had suggested €50. What can the economy initially cope with?

When it comes to the buildings and transport sectors, we do not really talk about distorting competition at the international level. With global competition in mind, the carbon prices could even exceed €100.

Nobody will move because the price of petrol has increased by 20 cents or because heating costs have gone up.

The key issue is social compatibility. A reimbursement of income per capita ensures that less wealthy population groups do not have any additional burden. This is presumably a prerequisite for politicians to be able to implement higher carbon prices.

This can be done administratively and legally via the health insurance funds. I am curious whether such a mechanism will be used in the next legislative period in the context of the necessary increases in carbon prices.

A climate protection law with clear and credible paths for reducing emissions in the individual sectors is attractive for business. That is because investors will then know where new markets are opening up and where they have to invest.

According to the new draft of the climate bill, “climate neutrality by 2050” is no longer considered a target, but it at least remains a long-term goal. Is this an opportunity for the economy, or is it a burden because of an expected recession?

The BDI [Federation of German Industries] demonstrated in its “Climate Path Analysis” that the industry could become climate neutral by 2050. However, this would require a clear regulatory framework to implement the necessary investments.

Otherwise, it would be difficult for investors to assess whether climate-friendly investments are robust or whether these could become so-called ‘stranded assets’.

In this politically uncertain world, the climate provides the highest planning security in comparison to all economic forecasts. The clarity of climate science is, therefore, in principle, an opportunity for politicians.

It is on this basis that a very robust investment framework can be created.

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The climate package will now have to pass through the Bundestag and the Bundesrat. The Greens have announced that they want to change parts of it. Do you hope that this will happen?

Some points do not yet seem to me to have been satisfactorily resolved. The Federal Council may offer opportunities in this case.

Concerning the buildings sector, I am pleased that energy-efficient refurbishments are finally being given top priority. However, for the implementation through tax incentives, which require the Federal Council’s approval, should be used to ensure stand-alone measures would not be funded. However, such comprehensive energy-saving refurbishments are prioritised so that climate neutrality can also be achieved.

To further develop wind energy, minimum distance rules to built-up areas, which are currently an obstacle in federal states, are now being discussed at the federal level.

Improvements also need to be made to implement the coalition’s planned investments for wind turbines so that these become the backbone of energy supply in the future.

[Edited by Zoran Radosavljevic]

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