Berlin Robert Habeck has been swearing in by the population for months: gas consumption must urgently be reduced. Germany must brace itself in the event that Putin turns off the gas. No event describes the energy policy doctrine of the Federal Minister of Economics as well as this one: Last week, it was temporarily forbidden to heat private pools with gas. Cold pools become a precaution.
Because appeals are not enough, only bans remain. Habeck and the federal government have thus chosen a completely different path than what economists have been preaching since the beginning of the war: people only act when they receive direct incentives – usually money.
“The economy clearly shows that appeals bring almost nothing,” says Klaus Schmidt, Chairman of the Scientific Advisory Board at the Ministry of Economic Affairs. He and his 37 colleagues have now sent a letter to Minister Habeck. Economics Veronika Grimm criticizes: “The ignorance of price signals is already taking revenge.”
A paper from the German Institute for Economic Research (DIW) from the beginning of April shows exactly that. A few weeks after the start of the Ukraine war, the researchers had determined how much gas could be saved if direct action was taken, if the high gas prices had an early impact on consumers , if bureaucratic simplifications to save energy are implemented directly, if gas-fired power plants are replaced immediately.
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The result: In the best-case scenario, natural gas consumption could have fallen by almost 33 percent this year compared to 2021. In fact, Germany saved just 16 percent in the first six months of the year. The DIW had predicted that much for the worst savings scenario.
“It’s too late now”
The 16 percent will increase further. Habeck has just launched new measures. And when it comes to heating, you can only save again in winter. But project manager Claudia Kemfert from the DIW explains: “That may still bring a little bit of something. But it can’t get much better than in our worst scenario.”
Habeck hasn’t done anything. He was particularly successful in the search for new sources of supply. He also jumped over his shadow and brought back coal-fired power plants. Last Thursday, the Vice Chancellor then presented his master plan for saving energy.
In addition to the heating ban for pools, there is an obligation for companies to invest in energy efficiency and a heating ban for passage rooms. “But financial incentives? Nothing further”, criticizes Kemfert. Instead, the price signals were even melted away with tank discounts and an energy subsidy program for companies.
Habeck is now planning to bring back lignite-fired power plants after hard coal, “but too late,” notes Christian Bayer, an economist from the University of Bonn. According to Bayer, around ten percentage points of gas could have been saved every month if the coal had been reactivated straight away.
>> Watch the video here: Habeck sharpens measures to save gas significantly
Chancellor Olaf Scholz (SPD) announced the first real price instrument the day after Habeck’s business games. The gas suppliers should be able to pass on 90 percent of their additional costs to all consumers. This is expected to start in October and will probably not be clearly received by end customers until next year.
“It’s much too late now. It is incomprehensible that such a procedure was only established in the last minute,” says Gabriel Felbermayr, President of the Austrian Institute for Economic Research. He also expects the surcharge to be too low to provide a real incentive.
Proposals from 38 economists
The important effect of the prices is no secret in the Ministry of Economic Affairs. The Ministry’s Scientific Advisory Board had already pointed this out clearly at its meeting in April, both in discussions with officials and publicly.
In June, the Advisory Board followed suit: the 38 economists employed at the state’s leading institutes and universities wrote a nine-page letter to Minister Habeck. The unpublished document was leaked to the Handelsblatt from government circles.
“A high gas price is the most efficient incentive to limit consumption,” the letter said. “If the price signal is overridden, have [Verbraucher] no longer an incentive to save on gas consumption.” The economists make several suggestions as to how Germany can use incentives to save gas.
The Advisory Board proposes allowing moderate prices for a base amount of gas, measured against 2021 consumption. “With every kilowatt hour beyond that, the high market prices should have an impact,” explains Advisory Board Chairman Schmidt, who teaches at the Ludwig-Maximilians-University in Munich.
Habeck’s reaction to ideas like these could go down in history. On ZDF, he explained proposals to reward citizens for saving energy with money: “You won’t get it, old man.” He doesn’t want to live in a country where you only move if there’s cash for it.
Energy economist Grimm replies: “It’s a romantic idea, but research suggests that a significant effect will only be achieved if there are clear price signals.” The SPD parliamentary group also has a concept of even paying out money to citizens for savings Habeck clearly rejected several times.
In the same television interview, however, the Economics Minister again emphasized the effect of prices. Habeck remarked that the high gas costs offered enough incentive to save. A surprising statement, since the vice chancellor usually emphasizes that the citizens only really feel the high prices in winter, when the bills come. A survey by market researchers from Innofact shows that only 18 percent of German households have received back payments for heating costs.
>> Also read here: Lignite, pool heating ban, investment obligation: Habeck wants to prevent the gas crisis with a package of measures
It is not much different for companies. A survey of 41,000 companies by the association of medium-sized companies, which is available to the Handelsblatt, shows: 57 percent of the companies have completed their energy procurement over the next one to three years. Accordingly, only 48 percent plan to take measures to use energy more efficiently.
A price incentive is at least planned: The Federal Network Agency wants to start an auction process. If a company does not use a certain amount of gas that it has bought, it gets paid for it. “You should let the signal function of the price work,” says Ifo President Clemens Fuest.
However, the five leading economic research institutes had already suggested this in their annual economic report in April. Client of the report: the Federal Ministry of Economics. It is now scheduled to start in October. “That should have happened much sooner,” criticizes economist Schmidt.
“Habeck has put everything on the map, be careful”
His House leaves open why Minister of Economics Habeck relies on a policy of appeals and largely ignores tough incentives. The ministry had not responded to any questions by the time of going to press.
However, anyone who asks around the ministry will recognize a pattern. Habeck and his entourage are well aware of the steering effect of prices. But those responsible seem to shy away from the risk. The economists say so too. “Habeck has put everything on the card, be careful,” says Wifo President Felbermayr.
The minister and the traffic light colleagues are concerned about social cohesion. “Politicians want to shield the population from high prices,” says Achim Wambach, President of the Center for European Economic Research (ZEW).
A crumbling social peace is definitely a danger, he and his colleagues also see it that way. “But you should separate more consistently,” says Wambach. The prices would have to work through energy policy; social policy is responsible for relief.
Ultimately, according to the Bonn researcher Bayer, the rejection of the incentives follows from political realities, more precisely the arithmetic of the traffic light. “The Greens couldn’t just start with the coal because of climate protection. The SPD has a stomach ache with price incentives because of the necessary social balance. And because the FDP absolutely wants the debt brake, the scope for this social balance is so incredibly narrow.
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