09/01/2023
Source: Energy & Management Powernews
The economy does not have to shrink under the accelerated energy transition. A study presupposes for it meanwhile that funds from the CO2 levy flow back to households and companies.
Technology alone will not fix it. To be able to achieve the climate targets in Germany by 2030 and neutrality by 2045, the German Institute for Economic Research (DIW) considers a combination of further energy efficiency and economic policy measures as necessary. Specifically, government payments to households and businesses to be financed from the revenues of CO2 pricing would even lead to economic growth.
In its " Weekly Report 34+35 ", the Berlin-based DIW has now presented a study that examines the achievement of climate targets while simultaneously growing the economy. The study modifies existing analyses from the Joint Diagnoses (GD) and a recent DIW research paper. Ultimately, two scenarios remain that initially make achieving the climate goals seem realistic.
Scenario 1
Energy-saving technological progress is proceeding faster as of now, at 4.6 percent instead of - as the previous average - 2.7 percent annually. By progress is meant lower energy use in production, heating and transport, to be achieved through technical innovations, energy refurbishment and the phasing out of combustion engines. Effect: Energy consumption would fall by 33 percent by 2030, with economic growth 0.15 percent stronger than in a scenario with constant greenhouse gas emissions (i.e., without the energy transition).
Scenario 2
The DIW sees the second scenario with which the climate targets could be achieved in a combination of technological progress, which would remain constant at 2.7 percent, and a CO2 price. This is represented in the model as a tax on the use of fossil energy. Without compensation payments from the state, this tax would mean the end for some energy-intensive companies. The consequences would be a lack of capital for investment and thus "slight economic dislocation." The economy would shrink by about 0.5 percent, with losses of 3.5 percent and 1.4 percent in terms of investment and capital stock.
The study's mothers and fathers also comment on whether technological progress can actually pick up speed rapidly under Scenario 1. This "is not very likely, but not impossible either," says study author Dany-Knedlik, who is also co-head of the economic team at DIW Berlin with Timm Bönke. It is more likely, she says, that the increase in efficiency will remain within the range of recent decades. Accordingly, the DIW recommends using revenues from the CO2 tax to promote growth that is in line with climate targets and to mitigate growth losses. This could be done via a climate money for the population and via expenditures for the expansion of renewable energies or for climate target-compliant investments of the economy.
This model shows that economic losses are not to be expected with an increased speed of energy-saving technological progress. The DIW study thus agrees with the plans of the German government, which wants to pay both a climate money to households and create a climate fund from which the further climate-friendly transformation of trade and industry is to be financed. The DIW assumes that additional government money of this kind would have "significant effects on long-term growth."
The DIW has made the study, "Meeting climate targets can only stimulate growth if the right combination of measures is used," available for download online.
Author: Volker Srephan
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