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"We should recognize the opportunities of tomorrow"

(Credit: Unsplash/Yeo Khee)

The energy transition not only presents us with immense technological challenges, but is also a mammoth task from an economic perspective. In an interview, Erik Grawel identifies the most important tasks and possible solutions for future energy policy.

The environmental economist Erik Gawel heads the Department of Economics at the Helmholtz Centre for Environmental Research - UFZ and is Director of the Institute for Infrastructure and Resource Management at the University of Leipzig. (Credit: Sebastian Wiedling)

Mr. Gawel, what needs to be done from an economic perspective for the energy transition to be successful?

We need to complete the energy transition quickly in order to create the conditions for the most complete decarbonization possible in the energy-based sectors of electricity, transport, heat and industry by 2045. In particular, the expansion of renewable power supply must be accelerated. This is by no means always a matter of providing additional government funding, but rather of improving the framework conditions for private investment. This includes, among other things, financial incentives or land provision for wind power, but also adjustments to approval procedures and tender design. The energy turnaround must be managed primarily through massive private investment. A strong and predictable CO2 tax is important for this. Government investment in selected areas rounds off this scenario. We quickly need a viable green investment program from the new German government.

What are the most important tasks?

The accelerated expansion of renewable energies for power generation, improving the energy efficiency of buildings and decarbonizing the transport sector, but also energy-intensive industry, are central. The new government must set groundbreaking framework conditions. There must be a clear announcement that the CO2 tax will continue to rise. At the same time, we need a long-term green investment program and an energy transition-friendly regulatory framework. Analogous to the existing electricity and gas grid regulation, the use of hydrogen will also have to be managed. First and foremost, however, environmentally and climate-damaging subsidies must be dismantled so as not to counteract green investments: It makes no sense to promote green energy on the one hand and to favor fossil fuel structures with billions of euros on the other. In areas such as freight or air transport, where there is a lot of technological potential for decarbonization, the federal government should drive innovation through research and development funding.

What solutions already exist for these tasks?

For most of these tasks, concepts and instruments have long been on the table, for example, the electrification of private motorized transport. Now it's a question of implementation. Other areas are still technologically more open, such as sustainable drive energy for aircraft or freight transport. The challenge of storing volatile green electricity, even over seasons, must be solved quickly. Economically, a mix of incentives, clear frameworks and targets, and public spending and revenues is always the way to go here. Too much micromanagement and subsidy actionism are not helpful. Subsidies in the form of vehicle purchase premiums are recommended within the framework of a rational economic policy only within very narrow limits: Subsidies for high-priced vehicles and drive technologies with a dubious contribution to climate protection, such as plug-in hybrids, point in the wrong direction.

What do you think should be done to mitigate social distortions?

It is important to keep the burdens of the transition as low as possible and to distribute them fairly. That is why economists advocate instruments such as emissions trading or levies. These ensure that the overall economic burden of a given emissions target is as low as possible. In addition, per capita repayments from these revenues mean that low-income earners with a smaller carbon footprint can actually benefit on balance. However, social distortions must also be substantiated and not just claimed. For example, it is questionable whether a future restriction of the distance allowance, which has been constantly expanded in the past and which earns more for high earners in euro terms, really represents such a "dislocation". Prices also serve a good purpose, for example to encourage energy-saving behavior. In principle, these instruments should be retained for everyone.

From an economic point of view, does the energy turnaround always mean just doing without?

First and foremost, the energy transition means change. Much of it can be achieved without sacrifice and even leads to gains. A concrete example of this is a sustainable, environmentally friendly and, in the long term, even more cost-effective energy supply from the region without the current dependence on imports. Along the way, there are costs for change. It is the task of the federal government to keep these burdens of the energy transition within reasonable limits and to distribute them fairly. In the long term, however, the age of renewables will make us richer, not poorer. After all, giving up the old in favor of the new is not always a loss. In the new LED world, we are probably all happy to do without the outdated, inefficient, and in some cases dangerous light sources of the past. Above all, we should recognize the opportunities in tomorrow and not be discouraged by the travails of transition.

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