The German economy under the yoke of the Green Deal

The energy turnaround is one of the strongest and most damaging influences on the economy of the Federal Republic, and therefore on the economy of Europe. This policy is being pursued in a double game between Ursula von der Leyen's Commission and Olaf Scholz's cabinet. It is true that Germany is in recession, that energy prices are weighing as heavily on the economy as they are on society, and yet important political decisions are subject to the diktat of the energy transition. The German federal government does not even hesitate to violate the Constitution - just think of the current budget crisis. It was triggered, as we know, because credit approvals from the Covid-19 crisis were intended to fill the coffers of the climate fund.

Critical voices are not welcome, even when they come from competent people. In a short space of time, the energy turnaround has become a matter of faith. With the threatening scenario of "man-made climate change", a crisis is being staged, an emergency situation is being created that tolerates no contradiction.

Yet these critical voices do exist. Fritz Vahrenholt raised his voice a long time ago and presents, among other things, some 'unwelcome truths' about climate change and the energy policy of Germany and the EU in an in-depth book that is well worth reading.[1]

Vahrenholt, who has a doctorate in chemistry, was Hamburg's senator for the environment from 1991 to 1997, then director of renewable energies in various companies. He is generally regarded as a climate change denier.[2]

However, Vahrenholt's explanations are not so easy to refute: they are objective, understandable and backed up by hundreds of solid sources. He points out - and rightly so - that the roots of Germany's energy turnaround go back to 2014. Angela Merkel's cabinet decided to reduce carbon emissions to 750 million tonnes by 2020. Compared to 1990 levels, this represents a 40% reduction.

In 2016, the plan to combat climate change [3] was presented, with an even more ambitious target of reducing carbon emissions by 55% by 2030 and 70% by 2040. For the first time, there was talk of a complete phase-out of carbon and a "neutral" greenhouse gas balance, i.e. a 100% reduction.

Like many things in politics, this was a short-term vision. There was no calculation of costs, no estimate of technical feasibility, and no study of the effects on the competitiveness of the German economy. Indeed, while the share of renewable energies in the electricity sector was around 30% at the time, it was only 13% in the heating market and even 5% in the fuel market.

In fact, the costs had already been estimated, for example by the German Academy of Technical Sciences.[4] But the results were so shocking that they were immediately swept under the carpet by Angela Merkel and her cabinet: not only would a 90% reduction in emissions double Germany's electricity consumption, but the costs would amount to the incredible sum of 4,100 billion euros. For the chemical industry alone, Germany's third largest sector, electricity requirements would increase enormously. Instead of the current 54 TWh, this sector would need 600 TWh of electricity.

Vahrenholt is even clearer: an energy policy that abandons 80% of its energy supply from coal and nuclear power in 30 years' time, without knowing where and at what cost the replacement will take place, is destroying its own energy, as can be seen in the car industry, which has been forced by strict limits to embark on the risky path of electric mobility.

Ursula's Green Deal

In 2019, Germany had to let itself be apostrophised by the Wallstreet Journal as the country with the "stupidest energy policy in the world" for abandoning nuclear power and coal.[5] But that hasn't stopped the Commission led by Ursula von der Leyen from taking the decision to create a climate-neutral Europe by 2050.[6] Here again, the ambitious goal is to emit no net greenhouse gases by 2050. Instead of honestly calculating the associated costs and (negative) effects, it is being treated as if this were a golden path for Europe's future:

The Green Pact for Europe is also our course of action to emerge from the COVID-19 pandemic. One third of the €1,800 billion of investment in the NextGenerationEU recovery plan and the EU's seven-year budget will fund the Green Pact for Europe.

In other words, the Commission led by Ursula von der Leyen is convinced that it makes sense to invest a third of European funds in the systematic destruction of the economy.

Vahrenholt says sarcastically:

Perhaps deindustrialisation will also help to reduce carbon emissions. In fact, part of the Green Deal consists of abolishing the exemption of energy-intensive industry from charges linked to certificates and taxes on renewable energies. This will hit German industry particularly hard. In return, the Commission wants to introduce a border carbon tax, and is seriously considering imposing a carbon tax on steel from China or natural gas from the USA to compensate for the competitive disadvantage.

What is the German federal government currently saying on this subject?

At the end of June 2023, the Federal Government launched a new version of the Climate Protection Act and presented the new comprehensive climate protection programme. This reaffirms the government's ambitious climate targets. From now on, more attention will be paid to the future development of greenhouse gas emissions, and the overall responsibility of all sectors will be strengthened. Against this backdrop, Germany's ambitious climate targets remain unchanged - the reform must not result in one tonne more carbon being emitted than under the current law.

And what do economic researchers think? According to the Institute for Economic Research, the German economy is slipping into recession in the current winter quarter. Economic researchers estimate that gross domestic product will fall by 0.2% between January and March compared with the previous quarter. By the end of 2023, GDP had already contracted by 0.3%.

Once again, it's forbidden to tell unwelcome truths: apart from restrictive monetary policy, the reasons for the recession are thought to be the high number of sick days (!), the rail strike and the very snowy month of January.

This article was first published in: Le Courrier des Stratèges on February 2nd, 2024

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