Energy transition

Following the Fukushima nuclear disaster in 2011, Angela Merkel’s government changed its position regarding the nuclear energy. Following the introduction in late 2013 of the grand coalition CDU/CSU-SPD, the energy transition was launched. What are the economic issues for German industry and what are the benefits of a transition to a greener industry?

Energiewende : main aspects and issues

German industry is the most powerful industry in Europe, for instance, the share of industry in Germany was 22.4 % in 2012 and therefore is a key sector of its economy. However, the implementation of the energy transition, known under the name of Energiewende, that was announced in 2011 and strengthened in 2013, raises many questions, from both the citizen side and the industrial side. If this transition creates a controversy towards the shutdown of nuclear power production, especially after the decision to completely abandon nuclear power by 2022 through a gradual expiration of permits to operate for 8 of the 17 German nuclear power plants ; polemics rise on the industrialist’s side who will have to pay taxes if their consumption of non-renewable energies happens to exceed the threshold laid down by the transition policy. Its main aspects are :

By 2050 should be implemented:

  • A reduction of 80-95 % of emissions greenhouse gases

  • A 60% share of renewables in total energy consumption

  • A 50% increase in energy efficiency

  • The establishment of an associated research program and development

 

However, these new targets pose many problems. For instance, the installation of wind turbines and solar panels has democratized in many German households, but the adverse weather conditions resulted in a growing use of extra energy sources such as coal. As a result, Germany’s CO2 emissions increased by 2% in 2012. What about the industry, how concretely establish an industry respectful of the environment without causing a loss of competitiveness?

The role of renewable energy in the industry

As  the German federal president Joachim Gauck mentioned, “the impacts costs and environmental risks must be placed on the account managers and not taxpayers, as an ecology friendly production should be profitable for competing businesses”. Indeed, the transition poses problems regarding the competitiveness between enterprises: The sectors of steel, chemicals, paper or cement were affected by a loss of competitiveness since the implementation of the taxes limiting the non-renewable energy consumption. German kilowatt being increasingly taxed and also one of the highest in Europe (0.27 euros against 0.17 in France), production costs will keep on increasing, since the increase in share of renewable electricity has dramatically raised the price of electricity in recent years, increasing in the ten last years from 6% to 25%.

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Eco tax reform

Another problem from across the Atlantic also raises concerns: the U.S. own cheap shale gas, and therefore can propose a less costly business environment, in contrast to Germany offshoring more production. The question is: could lead the energy transition to a gradual deindustrialisation? So far, only SMEs have engaged in this project and account for half of the investment that were made in renewable energies.

Still a community phenomenon, the transition scares and is considered to be mismanaged by the current government, although it has many positive aspects. Among them are for example, the creation of jobs, independence from major energy suppliers such as Russia or the USA, and most importantly, a greener earth for future generations.

 

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