Dr. Geres, the Climate Action Programme 2030 which was approved toward the end of 2019 contains a comprehensive list of measures for reducing emissions. Which of these will have the greatest impact on industry?
For virtually all businesses, the Climate Action Programme contains measures which should be analyzed more closely. The individual measures in question will differ depending on the industry. The key overarching measure is without a doubt the national carbon price, which will impact the heating market in particular. At the same time, it is important to keep in mind that electricity prices and the European Emissions Trading System have a major influence on the vast majority of industries. Trading prices have skyrocketed since 2018 owing to the reform. Because of this development, and because the cost of electricity is especially important for many new technologies’ chance of success on the market, the drive to decrease the EEG levy by utilizing additional revenues from the national emissions trading system is another key factor.
Industry and commerce will benefit from the significant improvement in funding instruments, including far higher subsidies than were previously available. Investments in energy efficiency and renewable energy will therefore pay off much more quickly than before in many cases. Together with increasingly strict requirements on the part of investors, this is causing companies to pay much more attention to how emissions can be reduced than they ever did just a few years ago.
Starting this coming year, fixed carbon prices for fuels will take effect. To what extent will carbon pricing impact the manufacturing industry?
Businesses should first understand the extent to which they are directly or indirectly affected. Directly impacted businesses such as natural gas suppliers should start preparing now. Starting in 2021, they will have to issue reports on their emissions as well as obtain and submit certificates. They need to outline and set up internal processes, enter into a dialog with customers and delimit clear responsibilities and decision-making powers.
Fuel consumers will be indirectly affected by the rise in fuel costs, which will have to be passed on by suppliers. To avoid being charged twice, operators of plants that are part of the European Emissions Trading System will be exempt if they can provide evidence of this to their supplier. In other words, suppliers will not need to surrender any national emissions rights for fuel-related emissions recorded within the EU Emissions Trading System. Dialog should be sought where this is the case.
The German government subsidizes investments in climate conservation. What subsidies should industrial enterprises keep an eye out for?
Companies should develop an intermediate and long-term climate strategy. To do so, they need to know their carbon footprint. This provides the basis for them to work out when and where carbon and energy costs can be cut as well as what investments are necessary. They can then establish which subsidies may be available to them. Possible measures range from improving the efficiency of the cross-sectional technologies found in almost every area to using renewable energies for heat generation or harnessing exhaust heat to introducing new technologies – powered by electricity or hydrogen, for example – for specific industrial processes.
Proposals for higher taxation or more restrictive threshold values are often rejected with the argument that they would harm businesses’ international competitiveness. Are German companies at an inevitable disadvantage if they invest in climate conservation?
No, just the opposite. We are in the middle of a fundamental economic and societal transformation worldwide. Companies that invest in climate conservation are also investing in their own future. In business, climate risks are increasingly seen as investment risks.
So there is no reason to doubt the urgency of investing in climate conservation. And the current coronavirus pandemic does not change this. On the contrary, climate conservation is emerging as a guiding principle for post-coronavirus economic stimulus programs in the EU and in many of its member states. For instance, on May 27, 2020, the European Commission presented its recovery program Next Generation EU, in which the European Green Deal plays a central role. Building renovation, the circular economy, renewable energy, hydrogen, clean mobility and logistics are all core elements. The program will also involve continuing to protect European industry from carbon leakage in the face of global competition by means of appropriate regulations. And of course, the state must support or back the investments required, some of which are quite high.
Germany has adopted the Federal Climate Change Act, the EU has its own Green Deal and the global community has the Paris Agreement. How do you view the multitude of national and international agreements?
We live in a complex and increasingly interconnected world. But we can only coexist successfully if we strive to make compromises between our different national interests. The necessary political processes are complicated – especially with regard to the critical issue of climate change – and the results of these processes as well as the handling of compromises are inherently complex. Just like everyone else, we experts are confronted daily by a flood of new information, which we have to sift through, organize and analyze to be able to offer companies appropriate advice. For decision makers, the most important thing is ultimately to determine the extent to which their companies are affected. There is no denying that decision makers have a lot of work to do in order to familiarize themselves with this issue, but the potential business opportunities available are surely a strong incentive.
I think it would be desirable to have uniform global climate policies with uniform instruments, but I don’t think this can be realistically expected in the near future. Why should it be any easier to shape international climate policy than other policy areas affecting the economy which also demand international cooperation, for instance issues revolving around currency and trade?
How can companies find their way through the sea of regulations?
As I have already mentioned, the key is for companies to understand how they are individually affected before anything else. Decision makers should make use of the information offered to them by their associations and the chambers of industry and commerce. There are other easily accessible options available to them, too, such as specialist newsletters, webinars and training courses. And of course, they can also take advantage of specialist consulting.
What do companies need to keep in mind to ensure that they are taken seriously and are not achieving carbon neutrality – or the appearance of it – solely through financial offsetting measures?
First of all, I take issue with this common perception that offsetting is nothing more than a façade. Individuals, companies and government agencies – including the German Federal Office of Administration and multiple state administration offices as well as local municipalities – who voluntarily and transparently offset their emissions contribute much more to global climate conservation than others who don’t do anything at all. I find it unfair to discredit these efforts across the board. But, of course, we do need to take a closer look. Anyone who only offsets their emissions and doesn’t actually take steps to reduce them is certainly on the wrong track. People and organizations should be examining not only the emissions from their own processes, but also those created through the use of their products. Otherwise they run the risk of seeing their sales drop as a result of emission reduction measures on the customer’s end. Or vice versa, of failing to capitalize on the benefits of their own products.
*Carbon leakage: The term “carbon leakage” refers to a situation that can occur if companies outsource production to other countries with laxer emissions regulations on account of the costs associated with domestic climate conservation measures. This could lead to an increase in their total emissions.