Germany’s Energiewende: A Path To Economic Self-Destruction

  • Date: 03/03/14
  • Walter Russell Mead, The American Interest

More bad news for Germany’s green dreamers: Two reports published this week highlight some fundamental flaws underlying the Energiewende, Germany’s radical set of energy policies.

The first, by the Commission for Research and Innovation (EFI), states that the subsidies by which green power producers in Germany are paid guaranteed, above-market prices to put electricity on the grid aren’t a cost-effective instrument for climate protection. Nor are they producing a measurable effect on innovation. “For both these reasons, there is no justification for a continuation of the EEG [the Renewable Energy Law],” the report concludes.

Those are devastating blows against the Energiewende’s legislative cornerstone, which has been in force since 2000. The special path on energy cost taxpayers €22 billion last year alone—and that figure doesn’t include residual costs to the economy.

German industry, as Reuters writes, seized on the report to support its opposition to incentives for renewable energy:

Export-oriented companies have warned that a sharp rise in the price they pay for power, buoyed by the cost of green incentives, are making them uncompetitive and some have threatened to shift investments and production abroad.

With industry accounting for around a quarter of Germany’s economy, its voice matters in Berlin. The BDI has said the government’s plans put about 900,000 jobs in Germany at risk.

The second report, by Information Handling Services (IHS), calculates that Germany lost €15 billion in exports last year from having to pay a premium for electricity compared with international competitors, and a total of €52 billion in the six-year period from 2008–13. As the Financial Times points out, smaller companies were disproportionately affected, because, “unlike heavy energy users such as BASF and ThyssenKrupp, small companies are not eligible for exemptions from the energy bill surcharges that cover the costs of the move to clean energy.”

Germany’s Minister of Energy and Vice Chancellor Sigmar Gabriel has already acknowledged that the system of subsidies for green energy needs to be reformed. Minister of Finance Wolfgang Schäuble also admitted that Germany may have gone too far in its attempt to legislate climate protection. But the reports published this week go even further than these confessions. The problem isn’t that there is a trade-off that needs to be rebalanced. Germany’s Energiewende isn’t a trade-off at all—just pure economic self-destruction: “The EEG doesn’t provide more climate protection,” the EFI writes. “It just makes [energy] more expensive.”

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