Berlin In 2019, the federal government spent 1.9 billion euros on promoting energy-efficient building refurbishment. A year later it was already 8.6 billion euros, and last year it was 18 billion euros. There is a factor of nine between the value for 2019 and the value for 2021.
Germany is fighting climate change. A lot of money is not only being distributed in the building sector. The environmental bonus, which encourages the switch from combustion engines to e-cars, hybrid vehicles and fuel cell vehicles, had a funding volume of 98 million euros in 2019, in 2021 it was already three billion euros – in between there is a factor of 30.
Anyone who would like to get a feeling for how energy-related refurbishment in the building sector could develop in the future should take a look at the funding for energy advice for residential buildings. In 2019, the Federal Office of Economics and Export Control (Bafa) approved 10,221 applications for funding for energy advice, compared to 73,000 last year.
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The funding volume is not so important here. However, the development in the number of applications reflects the dynamics with which building renovation is likely to continue to develop in the future. Because the approved applications for energy advice in 2021 will be reflected in concrete renovation measures in the coming years.
Economics Veronika Grimm: This is how you drive the energy transition against the wall
Economists are therefore now sounding the alarm. They warn that funding could get out of hand. “If decarbonization is to be pushed ahead quickly, there is a risk that the volume of funding will explode,” said economics expert Veronika Grimm to the Handelsblatt. “Programs are set up that can produce unbelievable deadweight effects. This is how you drive the energy transition against the wall.”
The promotion of building renovation has only just shown that programs could be overtaken by technical progress. “If a funding program takes effect even if only a standard technical solution is implemented, that is simply a waste of tax money. That has little to do with climate protection,” said Grimm.
When the goal of climate neutrality had not yet been decided, many programs were half-hearted. “A fragmented, difficult-to-understand funding framework has emerged. Programs were always launched when it seemed politically opportune,” criticized the economist. “The complexity of the funding instruments is becoming a problem. Smaller players in particular have to build up massive competencies so that they can even manage to benefit from funding,” said Grimm. Overall, the system is “clearly too complex”.
A fundamental problem of the support programs is that they often completely bypass lower and middle income groups. “Because people from these income groups have to spend the vast majority of their income on consumption, they mostly rent and often don’t have the means to buy an electric car,” said Grimm.
Better use should be made of the CO2 price
The economy recommends relying on the CO2 price. Admittedly, he cannot achieve everything overnight on his own. “However, one should rely much more on this instrument and establish an ambitiously increasing CO2 price as a leading instrument. The effects are systematically underestimated,” advised Grimm.
Felix Matthes from the Öko-Institut, on the other hand, considers the potential to be limited. “You can’t bring about the conversion solely by means of the CO2 price. Carbon prices are important, but in some areas they make little difference,” he said. “And the higher the CO2 price, the more delicate the compensation rules will have to be. That too can make the system complex and vulnerable, or lead to lengthy political debates,” said Matthes.
Matthes is critical of the environmental bonus that promotes the switch from combustion engines to other drives. “You shouldn’t just promote what is good and desirable, you should also put more strain on what is undesirable, i.e. the combustion engine,” said Matthes. “But the inhibitions of politics are great. If you essentially limit yourself to paying out purchase bonuses, the burden on the budget is high.”
>> Read here: Six aspects that homebuyers should consider now
Matthes, on the other hand, considers the promotion of energy-efficient building refurbishment to be sensible: “When it comes to building refurbishment, it is largely undisputed that funding programs are useful and necessary. The possibilities of forcing homeowners to take action through regulatory law are limited.”
Hubertus Bardt, Managing Director of the German Economic Institute (IW), is also skeptical about the overall funding situation. “The programs are often not very accurate, and money is thrown out the window. Industrial policy goals are often pursued at the same time or certain individual interests are served,” Bardt told the Handelsblatt. “It is unavoidable that the various subsidy programs trigger deadweight effects. Unfortunately, you have to accept a certain amount of overfunding,” said Bardt.
“More could have been achieved with the resources used if the most favorable potential had been systematically addressed. Where sector-specific goals are not efficient, the funding programs cannot be either,” said Bardt.
The government’s emergency program has also been criticized
The fact that the effect of funding measures is difficult to assess was something the Federal Ministry of Economics only had to certify in August of last year. After it became clear that the emission reduction targets in the building sector for 2020 would not be met, the Ministry was obliged under the Climate Protection Act to launch an emergency program to catch up. But the expert council for climate issues set up by the federal government expressed doubts about the effectiveness.
“The emergency program for the building sector will certainly contribute to an additional reduction in greenhouse gas emissions in the coming years, especially if the funding volumes are increased beyond 2021, as assumed in the documents submitted,” said Hans-Martin Hennin, Chairman of the Expert Council. All in all, however, he considered the program to be inadequate.
The ministry assumed that the emergency program would achieve an additional reduction in greenhouse gas emissions from the building sector by two million tons in 2025. “As a result, these values tend to be overestimated,” writes the Expert Council. It was “no methodologically consistent, isolated quantification of the effect of the immediate program 2020 submitted by the ministries” possible.
More: “Considerable loss of confidence” – IW economist analyzes the preliminary funding