Energy crisis: The fallacy of the economists

Trimet aluminum smelter

The energy-intensive industry is facing major challenges. The high level of energy prices in Germany cannot be offset by increasing efficiency alone.

(Photo: ddp images/dapd/David Hecker)

The experts’ report triggered an unusually large debate this week. One point – perhaps one of the most important – was missing from the debate: the consequences of the energy emergency.

The economists consider the danger of widespread de-industrialization in Germany to be low. They believe in the innovative power of German industry: in the past, energy-intensive companies had managed to use energy more and more efficiently. The current energy crisis is increasing the pressure on companies to accelerate the structural change in industry that is already pending. Ergo: A broad de-industrialization of Germany as a location is therefore not to be expected.

This chain of arguments sounds like something straight out of an economics textbook. But she is naive. Economic wise men assume political framework conditions at national and European level that have never existed before and will probably never exist.

Long before the current energy crisis, the energy and climate policy of the EU and Germany in particular imposed burdens on industry that do not exist elsewhere. For years, companies and petitioners have had to fight to receive compensation for climate protection-related burdens. The EU Commission regularly smells inadmissible subsidies. The incumbent federal government is more or less committed to preventing the greatest hardships.

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Emissions trading, for example, is a tight corset. Even those companies that are in international competition are left with a significant portion of the costs of emissions trading, and the trend is continuously increasing. And according to the Commission’s ideas, the free allocation of certificates should be phased out as quickly as possible.

Thousands of companies will reduce production or go abroad

Many companies are affected that have no realistic chance, at least in the medium term, of redesigning their processes to be climate-friendly. At the same time, the CO2 border adjustment has already been decided, although the risks and side effects of the new instrument cannot be clearly identified.

>> Read also: Interview with Head of Economics Schnitzer – “We don’t expect widespread de-industrialization”

This already precarious situation is overshadowed by the energy crisis. Again, the usual patterns can be seen. Yes, they want to help the companies affected, the Federal Government and the EU Commission are in principle in agreement. In fact, Berlin and Brussels are talking about completely different instruments. There are signs of protracted disputes about who will benefit, about upper limits, and about trade and energy intensity.

Thousands of companies will lose out. They will reduce their production or relocate it abroad and postpone investments in Germany. In any case, it will not be possible to subsidize the particularly high energy prices in Germany in the long term.

Physical-technical limits of increasing efficiency

And so a process will continue that has been a reality in Germany for many years: companies from energy-intensive sectors invest less than they depreciate. So they consume their substance.

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As far as the increases in efficiency hoped for by the Council of Experts are concerned as a means of fighting sharply rising energy costs: in many cases they are reaching physical and technical limits, while the switch to future-proof, climate-neutral technologies in this country is fraught with particularly serious problems.

The basic requirements for the conversion are missing, namely electricity from renewable sources in large quantities and at low prices. One can only admire the courage of steelmakers who have already made investment decisions for hydrogen-based production processes. Where the required hydrogen will come from on a large scale in a few years, via which infrastructure it will be supplied – all of this is still unclear in Germany.

Therefore, the switch to climate-neutral processes will take place where, for example, the use of blue hydrogen or CO2 storage is not made impossible, such as in the USA. The fact that the Americans are now creating additional incentives with the Inflation Reduction Act (IRA) reinforces this trend.

More: Cold withdrawal of Russian gas – Germany is threatened with an emergency winter

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