Joachim Lang (right) is managing partner of the Strategic Minds Company consultancy and former general manager of the Federation of German Industries (BDI).
Matthias Machnig was State Secretary in the Federal Ministry for Economic Affairs and Energy.
(Photo: obs)
The turning point is not only a geopolitical one, but also an economic one. Europe and Germany are facing enormous challenges as a business location. An economic path must be found between the American investment and innovation model and the statist-dirigist Chinese economy.
The Inflation Reduction Act (IRA) subsidy program launched by the USA is an attempt to increase geoeconomic independence, strengthen sustainable, climate-friendly investments and thereby promote a re-industrialization of the American economy.
Europe and Germany need a comprehensive, consistent answer that can be implemented quickly. In order to make the energy transition a success and to ensure the competitiveness of European and German industry, a package of measures is required that will be decided and implemented this year.
It must be about a triad of competitive energy prices, strengthening investments in the transformation of the energy sector and industry, and a general improvement in the framework conditions for transformation projects.
Instead of technological micromanagement, strengthening the location and the competitiveness of companies must go hand in hand with promoting effective CO2 reduction and digitization.
The EU needs a sovereignty fund
Such an integrated location and sovereignty program should include the following elements:
1. Establishment of a European sovereignty fund amounting to one percent of European economic output per year until 2030. The fund should strengthen and support competitive energy prices and transformation investments (e.g. expansion of renewable energies, energy networks, battery cell technology).
The fund must also contribute to achieving transitional competitive hydrogen/electricity and gas prices (such as an industrial electricity price or an industrial gas price) in order to increase investment security for companies.
2. The instruments of the European Investment Bank for transformation investments must be strengthened, for example by extending the guarantee of guarantees or silent equity investments. At the same time: establishment of a European hydrogen bank that supports international and European hydrogen production and infrastructure projects.
>>Read here: EU Commission leaders warn of a subsidy race with the USA
3. Further flexibilization of the European subsidy regulations, in particular for the energy transformation, the energy-intensive industry in Europe and for future investments in sustainability and digitization.
4. The European regulations must be adapted in such a way that there are no obstacles to the use of renewable energies for hydrogen production and to the rapid development of a hydrogen infrastructure. These are essential prerequisites for an effective and rapid ramp-up of the European hydrogen market.
5. Negotiations on a European-American industrial trade agreement that puts the European economy on an equal footing with Canada and Mexico and implements principles of WTO law. At the same time, measures for effective protection against CO2-intensive companies moving abroad (carbon leakage) are required for the energy-intensive European industry, for example within the framework of a climate club.
Planning and approval procedures must be accelerated along the lines of the LNG terminal procedures
6. Introduction of the super write-offs for transformation investments of up to 100 percent agreed in the coalition agreement by January 1, 2024 at the latest in order to create attractive investment framework conditions.
7. Establishment of a program with Carbon Contracts for Difference, in which the state pays companies that produce with climate-friendly technologies the difference between the market price for emission certificates and the CO2 avoidance costs. The program should apply in particular to energy-intensive industry in order to ensure the competitiveness of transformation investments and products.
8th. The state should act as a guarantor for industrial consortia made up of manufacturers, project operators and electricity consumers, with whom the purchase and financing of European renewable energy projects and the supply of cheap green electricity is contractually agreed.
9. The range of energy supply must be expanded and differentiated. This has price-dampening effects. At the same time, the legal framework for new investments in secure capacity in the electricity market must be created in 2023.
10 Legal measures to simplify and accelerate planning and approval procedures, which are based on the experience and instruments of the LNG terminal procedures.
The German business model is up for grabs. It is necessary to formulate and implement an economic policy response. Time is running out.
The authors:
Joachim Lang is managing partner of the Strategic Minds Company consultancy and former general manager of the Federation of German Industries (BDI).
Matthias Machnig was State Secretary in the Federal Ministry for Economic Affairs and Energy.
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