RWE CEO Markus Krebber and IGBCE Chairman Michael Vassiliadis are calling for a grace period for industry. A guest article.
Around 11,000 kilometers separate the US and China – yet they cannot avoid each other. Geopolitical tensions between the two superpowers are changing the rules of globalisation. Free trade and the global division of labor are increasingly being replaced by isolationism and protectionism. The effects are hitting Germany's export-oriented economy hard.
Industry in particular is coming under massive pressure as it struggles with subsidised foreign competitors and rising climate protection costs. The danger of industry relocating is real and would have serious consequences for Germany as a business location. Germany is threatened with the loss of highly skilled jobs that are indispensable for innovation, prosperity, and social cohesion. The exodus of industry would also do a disservice to climate protection, as goods currently produced in Germany would then have to be imported from countries whose production methods are more harmful to the climate.
In this critical phase, industry needs a decisive response from politicians that gives it planning and investment security. This is particularly important because investment decisions are pending in many places. To ensure that these decisions are made in favour of Germany as a business location, the cost-efficiency of climate protection must be reviewed, and a structural response is needed to ensure fair competition and secure strategically important value chains.
The CO2 prices of European emissions trading play a central role in cost-efficient climate protection. Using market-based methods, they ensure that emissions are avoided first where it is cheapest, while expensive measures follow at a later stage. In order for this economically sensible principle to take full effect, we need a paradigm shift and more time for climate protection in industry: instead of forcing industry to choose between taking expensive climate protection measures or relocating, its decarbonisation should take place later, when technologies have been further developed.
This is supported by a look at the avoidance costs incurred in the various sectors. While CO2 avoidance is most expensive in large parts of industry, the situation is different in power generation, transport, and the building sector. Here, short-term cost advantages could be achieved – especially if electricity is used to avoid CO2 emissions and serious efforts are made to ensure that the social aspects of residential building renovation are taken into account. In order to accelerate the electrification of these sectors, policymakers should reduce taxes and levies on electricity as much as possible.
Economically rational climate protection also avoids all costs that have no impact on climate policy. In a CO2 trading system, there is no need for further dirigiste detailed regulations, such as requirements for gas-fired power plants to switch from natural gas to hydrogen. The EU requirements for green and "low-carbon" hydrogen should also be abolished. Dogmatic restrictions to a few technologies drive up costs and slow down the transformation. A direct reduction plant in the steel industry, powered by natural gas, is faster and cheaper to obtain than waiting for green hydrogen. Where decarbonisation remains expensive and uneconomical in the long term, negative emissions should be used to compensate. Used on an industrial scale, the capture of CO2 from the ambient air or from biomass, for example, can make a significant contribution and is cheaper than the direct decarbonisation of some industrial processes. High-quality climate protection projects outside the EU should also be eligible for credit to a limited extent.
Although CO2 prices are cost-effective, they must not place an additional burden on domestic industry, which is exposed to international competition. Industry is the only sector that is mobile and can relocate. To prevent this and give companies investment security, a structural response is crucial. By reducing the electricity tax for the manufacturing sector, policymakers are laying the first building block for relief. Others must follow, for example, with the long-term stabilisation of relief for energy-intensive industries through grid fee reductions and electricity price compensation. An expansion to other sectors is also necessary. For energy sources such as gas and oil, the continuation of free allocation of CO2 certificates is currently the only effective way to maintain the competitiveness of energy-intensive industries. This is the only way to preserve integrated value chains and highly skilled industrial jobs. The carbon border adjustment mechanism being considered at the European level will not succeed in this, because it is full of loopholes, prone to errors, and does not provide a solution for exports.
The turning point proclaimed for 2022 also marks a break with our economic order. Independence costs money, but dependence costs much more. That is why supply chains for future and key technologies must be maintained and established in Germany and Europe. We have gained nothing if, for example, we exchange dependencies on imports of fossil fuels in electricity generation for dependencies on imports of important technologies such as battery storage or renewables. Domestic production ensures value creation, the application of our labour and safety standards, and prevents CO2 emissions from being shifted abroad. If we succeed in this, then the turning point will no longer be a description of the current situation, but will become a concrete mission for the future.
© Frankfurter Allgemeine Zeitung GmbH, Frankfurt. All rights reserved. Provided by the Frankfurter Allgemeine Archive