Robert Habeck has created political transparency with the “opening balance sheet on climate protection”: “The current climate protection measures are inadequate in all sectors.” The climate neutrality targeted for 2045 in Germany will not be achievable with them. The CO2 reduction rate would have to be almost tripled by 2030.
This should go hand in hand with economic prosperity and be socially acceptable through social balance. Missing the target is at least no longer answered with a tightening of the target, but with more effort in the implementation.
Climate protection is now a cross-sectional task. The bundling of business and climate protection in one department is reminiscent of the Federal Ministry for Economics and Labor under Wolfgang Clement. 20 years ago it was about combating hardened unemployment, which finally succeeded and continues to this day.
Now it’s about a structural change in which climate neutrality modernizes and secures the industrial location. The planned measures include levers that take effect quickly – such as the inclusion of the EEG surcharge in the federal budget to reduce the price of electricity – and those that have significantly longer lead times such as the hydrogen strategy or have only a limited effect such as building renovation.
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Climate protection agreements are intended to economically secure the decarbonization of production in the manufacturing sector. At the same time, however, the limits of the effectiveness of isolated climate protection policy become clear here.
Because the size of the transformation can hardly be overestimated in terms of economic history, especially with a view to the time path. Success therefore depends not only on specific and consistent climate policy measures, but even more on appropriate support from all economic policy actors, not just individually, but all in coordination with one another.
Disoriented call for energy price brakes
This is evident in the current debate about inflation. Although the increase in energy prices is mainly caused by international political tensions, it basically only anticipates what decarbonization demands: an increase in the price of fossil fuels.
As long as alternative drives such as e-mobility and alternative heat sources are expensive or the energetic renovation of buildings causes high costs, it is hardly possible for low-income households to avoid them.
The hasty people are calling for monetary policy to combat inflationary effects that they cannot control, and the disoriented are calling for energy price brakes. If the transformation is to succeed, the change in relative prices at the expense of fossil fuels and emissions-related products must be accepted; only then will the necessary changes in behavior take place. The social questions must be answered by the financial policy.
This includes the adjustment of the basic security, the abolition of the EEG surcharge is also helpful because of its distribution effects. The minimum wage has no systematic function here because wage policy is not social policy.
Rather, the anti-incentive income tax rate should finally be smoothed out and automatically indexed with inflation. That would burden the federal budget, which also has to bear the higher social transfers.
The household is under pressure
The budget is not only coming under pressure from tax and social policy, but also from an investment policy perspective. This applies to the financing of public infrastructure investments, but also to the promotion of private investments.
Although the climate protection agreements formally establish subsidies, they are intended to support corporate structural change. While credit financing for the infrastructure can be organized via investment companies in accordance with the debt brake, this is less the case for climate protection agreements. The income from CO2 pricing has been exhausted by the abolition of the EEG surcharge.
Monetary policy and wage policy can only act appropriately in the interests of transformation if financial policy manages the balancing act of social equality, tax fairness and intelligent investment financing. If fiscal policy masters this, it will relieve wage policy at the same time.
Inflation, which initially resulted from problems with the availability of raw materials and intermediate products and disruptions in the logistics systems, is now caused by energy prices and will be driven in future by the price of CO2, harbors the risk that it will lead to a price-wage price – Spiral leads.
If fiscal policy takes over the social balance and returns the effects of cold progression to the taxpayer, private households have the prospect that the income effects of the changes in relative prices that are unavoidable in the transformation will be largely offset. Wage policy can be based on the inflation norm of the central bank and thus make its contribution to stabilizing the price level.
This orientation corresponds to that of the past decade, with price development along the border to deflation. Even then, the unions did not use the actual change in the Harmonized Index of Consumer Prices as a basis.
What does the annual economic report reveal?
All of this would in turn relieve monetary policy. Because the concern about a transfer of what they see as exogenous, uncontrollable inflation into an endogenous, monetary-supported inflation dynamic would be allayed.
It is true that the European Central Bank, like the Federal Reserve, is allowing its course of unconventional measures to be phased out because there is no longer any justification for this when the economy is picking up. However, interest rate hikes are less likely if wage policy is reasonable. This in turn is linked to an improved prospect of the viability of debt-financed infrastructure programs for public finances.
In the early 1980s, the aim was to reach a consensus on employment policy in order to give monetary policy more scope for interest rate relief through a stability-oriented wage policy and solid financial policy. The experience of all actors was marked by conflict.
Now it is about a climate policy consensus that calls for a new balance between the partners. Only then will the macroeconomic framework match the challenges and conditions of structural change.
However, we have not been used to comprehensively assessing macroeconomic conflicts for a long time. That needs to change. Otherwise the transformation to climate neutrality will already fail domestically.
The promise of achieving socially responsible climate protection and economic prosperity in industrialized Germany affects all economic policy players, without exception. The first annual economic report by Robert Habeck should show whether this knowledge exists.
The author: Michael Hüther is director of the Institute of German Economics in Cologne.
More: How Economics Minister Habeck wants to drive the energy transition forward.