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Climate neutrality in Germany achievable by redirecting investments and increasing costs for fossil fuels
16.10.2024
A mix of promoting new technologies and making oil and gas more expensive could enable a climate-neutral economic system in Germany at relatively low cost, according to an Agora study.
The Berlin-based policy consultancy Agora Energiewende has presented the study "Climate-neutral Germany. From goal setting to implementation". The result: "Three quarters of the investments required for a climate-neutral Germany can be mobilized by redirecting funds away from fossil technologies towards climate-neutral alternatives," Agora announced.
Nevertheless, climate neutrality does not come for free, as the study makes clear. According to Agora, the total investment required will amount to 11 percent of gross domestic product (GDP) annually by 2045. However, 8 percent of investments in buildings, industrial facilities and transportation would have to be made anyway. An additional 3 percent would have to be raised.
The study quotes figures: The additional investment required for climate protection amounts to 147 billion euros per year from 2025 to 2045. "The majority of this will be private investment; a quarter - around 38 billion euros - will come from the public sector."
According to the study, an annual funding requirement of 58 billion euros in public funds will be necessary by 2030 in order to avoid excessive cost burdens for companies and households. These state funds will mainly flow into investment grants, for example in the building sector or as part of climate protection contracts for industry.
A smaller proportion is used to finance compensation payments for households and companies in international competition. Agora cites the continuation of electricity price compensation and the introduction of social compensation payments as examples.
Mixture of policy instruments necessary
To enable the necessary investments, the Agora study recommends a mixture of four complementary policy instruments:
- Price-based incentives: carbon pricing makes fossil fuels more expensive and climate-friendly technologies more attractive.
- Market regulation: This makes it possible to restrict harmful technologies and support climate-friendly technologies.
- Financial support: Promotion of new technologies such as e-cars or low-interest financing for climate-neutral buildings and projects.
- Sustainable infrastructure: This is the basic prerequisite for switching to climate-neutral alternatives in the energy and transportation sectors.
In addition to the electrification of industrial processes, the switch to climate-friendly production methods in the steel and construction sectors can be promoted by state lead markets. This supports the construction industry in switching to low-emission materials. Investments in renewable energies, electromobility and climate-neutral industries would create long-term competitive advantages in global growth markets.
Reducing dependence on imports
The study also emphasizes the reduction in energy import dependency by 85% by 2045 if the goal of climate neutrality is achieved. As a result of the expansion of renewable energies, "dependence on energy imports will fall by almost 85 percent: from 2,474 terawatt hours in 2019 to 391 terawatt hours in 2045".
"Our vision for the future is not a foregone conclusion. For it to become reality, we need decisive political measures," says Simon Müller, Director of Agora Energiewende. "The path to climate neutrality requires an effort by society as a whole, but one from which all parts of society will benefit."
The study "Climate-neutral Germany. From goal setting to implementation" can be downloaded from the Agora Energiewende website. It was commissioned by Agora from the consulting firms Prognos, Öko-Institut and Wuppertal Institute as well as the University of Kassel.
Author: STEFAN SAGMEISTER