The cost of the energy transition in Germany

The Federation of German Industries (BDI), the country’s most important industry association, released a statement in early 2018 which concludes that provided energy-intensive businesses are not disadvantaged on the world market, German industry will benefit from ambitious climate protection. Climate policy is an important driver for for innovation and modernisation.

Current policies will lead to a 61% reduction in GHGs, whereas the official goal is 80-95%.

BDI considers 80% to be ambitious, and 95% only possible within a context of other industrial countries making a similar effort. 80% reduction would require a cumulative total investment of 1.5 trillion euros by 2050. Significant in the difference between direct investment and costs is the cost of inaction. The net cost is a benefit for the economy.

1.5 trillion euros = 45 billion euros per year = 1.2% of GDP (3.2 trillion in 2017)

Raising the reduction level from 80% to 95% (the level required to meet the Paris Climate Agreement target) would raise the investment cost from 1.5 to 2.3 trillion euros, according to the BDI report. Its recommendations to the government include technology-neutrality – instead of promoting specific technologies and resources, develop instruments and packages which promote efficiency and overall economic advantages from climate policies, as well as digitalisation and next generation technologies. However, The policies already in place in Germany would only lead to a 61 percent drop in greenhouse gas emissions, compared to the official goal of an 80 to 95 percent reduction.

Commenting on the BDI report, Christoph Bals of Germanwatch said: “We are positively surprised. The BDI seems to increasingly realise that Germany’s industry is put in danger if we don’t use an ambitious climate policy as a driver for innovation and modernisation.”

A separate study by the Energy Systems of the Future (ESYS) at the National Academy of Science and Engineering (Acatech) calculates that the energy transition, including the decarbonisation of heating and transport, would require 30-60 billion euro per year till 2050, or 1-2% of GDP. The cost can be reduced by creating a uniform CO2 price for all sources.

A 2016 study by the Institute for Competition Economics (DICE) at Düsseldorf University for the Initiative Neue Soziale Marktwirtschaft (INSM), a business lobby group, points out that current energy transition poicies are not cost-efficient and should be more market-based. Converting the power sector would cost 520 bn euros by 2025, with the renewables surchage (EEG) being the major component.