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Reaching net zero while safeguarding competitiveness and social cohesion in Germany

Author

Listed:
  • Zeev Krill
  • Robert Grundke
  • Marius Bickmann

Abstract

Germany intends to reach climate neutrality in 2045, tripling the speed of emission reductions that was achieved between 1990 and 2019. Soaring energy prices and the need to replace Russian energy imports have amplified the urgency to act. Various policy adjustments are needed to ensure implementation and achieve the transition to net zero cost-effectively. Lengthy planning and approval procedures risk slowing the expansion of renewables, while fossil fuel subsidies and generous tax exemptions limit the effectiveness of environmental policies. Germany should continue to rely on carbon pricing as a keystone of its mitigation strategy and aim to harmonise prices across sectors and make them more predictable. Carbon prices will be more effective if complemented by well-designed sectoral regulations and subsidies, especially for boosting green R&D, expanding sustainable transport and electricity network infrastructure, and decarbonising the housing sector. Subsidies for mature technologies and specific industries should be gradually phased out. Using carbon tax revenue to compensate low-income households and improve the quality of active labour market policies would help to support growth and ensure that the transition does not weaken social cohesion.

Suggested Citation

  • Zeev Krill & Robert Grundke & Marius Bickmann, 2023. "Reaching net zero while safeguarding competitiveness and social cohesion in Germany," OECD Economics Department Working Papers 1768, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1768-en
    DOI: 10.1787/5bf13192-en
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    More about this item

    Keywords

    Carbon Pricing; CGE climate modelling; Climate Policy; Energy; Environmental Taxation; Germany; Green Investment; Industrial Policy; Labour Market Analysis; Plant Closure; Social Consequences of Mitigation Policies; Transport;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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