The energy costs have risen significantly recently.
(Photo: dpa)
Germany’s consumers are groaning at rising prices for petrol, diesel, oil and gas. But in terms of climate policy, the high prices are just the thing. The current price for premium petrol corresponds to a CO2 price of around 75 euros per ton compared to the level at the end of 2019. That is significantly more than the price of 25 euros introduced at the beginning of 2021.
So Kremlin chief Vladimir Putin and the OPEC cartel are the best climate protectors. The vague statements in the coalition agreement show that such an ambitious CO2 price would not be politically enforceable.
Given the enormous fluctuations in crude oil prices, however, the question arises as to whether rigid CO2 prices are optimal in terms of climate policy. If one wants to achieve a stable upward trend in end-user prices, one should consider the model of a flexible carbon price.
This would also reduce the fluctuations in the inflation rate that cause fluctuating energy prices. The income generated could be distributed to citizens through direct transfer payments.
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If you want to stop climate change through price incentives, a paradigm shift is required. The idea shared by almost all economists that this requires a CO2 tax is fundamentally correct. But one has to take into account that the world market prices for oil and gas are not competitive prices.
Reduce the CO2 price in full with rising crude oil prices
They are shaped by the strategic behavior of the Opec cartel and Russia. Since these countries have an interest in continuing to sell oil in the future, they will try to undermine the carbon pricing of the consumer countries by lowering prices. This is not a problem for them with long-term fixed CO2 prices.
With flexible CO2 prices, they cut their own flesh when they lower prices. Your income will decline in favor of the CO2 revenues of the consumer countries.
Peter Bofinger is Professor of Economics at the University of Würzburg and was a member of the Expert Council.
(Photo: SVR)
However, one has to ensure that the cartel does not use the flexible CO2 price as an opportunity to increase prices strategically. This requires that the CO2 price is not fully reduced when the price of crude oil rises. Then, if the cartel raises prices, it must expect final prices to rise and sales to fall.
The new system could be introduced as early as the beginning of next year by suspending the planned increase in the CO2 price from 25 euros to 30 euros. Because in terms of climate policy, there is no need for this increase step in view of the high prices for consumers. The increase would be made up for if world market prices fall again.
Suspending the CO2 price hike would also prevent inflation from being further fueled. The paradigm shift would therefore take place on a positive note.
More: Pros and Cons: Is the high inflation really just a temporary phenomenon?