ifo and Frankfurter Allgemeine Zeitung Economists Panel

Energy Price Crisis: Only 14 Percent of Economists Support an Electricity and Gas Price Cap to Relieve Households

Accompanying its war of aggression on Ukraine, Russia has successively reduced gas supplies to Europe. As a result of Germany’s strong dependence on Russian gas, the supply freeze has led to a drastic shortage and price explosion on the energy market, burdening households and businesses alike. The resulting social and economic destabilization is the goal of Russia’s actions, so much so that the German government is now speaking of an energy war. To ease the burden on households and businesses, the German government has approved three relief packages with a total volume of around EUR 95 billion. The German government announced a further, debt-financed EUR 200 billion package on September 29, 2022. The 40th ifo and FAZ Economists Panel focuses on current developments on the energy markets. The survey was in the field from September 27 to October 4 and a total of 178 economics professors participated.

Economists See German Government as Responsible for Expanding Energy Supply and for Incentives to Save Energy

A full 81 percent of the participating economists state that in dealing with the drastic increase in electricity and gas prices, the German government should focus on expanding supply, e.g., through new energy sources. They express similarly strong approval for economic policy measures that provide incentives for households (77 percent) and businesses (69 percent) to make savings. The share of economists who think the German government should focus on providing households (53 percent) or businesses (41 percent) with relief was significantly lower. Multiple responses were permitted.
 

Infographic, Economists Panel October 2022

Continued Operation of Nuclear Power Plants Is Preferred Measure for Expanding Electricity and Gas Supply

To expand the supply of electricity and gas in Germany, 81 percent of respondents support the continued operation of the remaining nuclear power plants beyond 2022. Other popular measures include pruning regulations that impede the expansion of renewables (74 percent), building more LNG terminals (71 percent), and expanding electricity transmission networks (70 percent). 61 percent of participating economists favor purchasing LNG “even from autocratic states” such as Qatar and the United Arab Emirates. Less than half of the economists support restarting retired coal-fired power plants (47 percent), financially supporting renewables (44 percent), and lifting the ban on fracking in Germany (42 percent). Multiple responses were permitted.

Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022

Strong Support for Providing Households with Relief – Especially in the Form of Energy Funds

At 83 percent, a large majority of economists are in favor of further relief for households from high energy costs; at the same time, a large number call for the relief to be restricted to certain groups of people, for example, only for lower and middle-income earners. Some of the respondents note that the relief should apply only to basic energy needs, as it is necessary to further reduce demand through incentives. Accordingly, support among economists for an electricity and gas price cap, in which the government sets the price for a fixed amount of electricity and gas and bears costs beyond that, is extremely low. Only 14 percent who support relief favor this form of relief. In contrast, 68 percent support energy funds. Such transfer payments via the higher tax rates of high-income households would automatically ensure that the relief would reach households in particular need.

Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022

Disagreement among Economists on Further Relief for Businesses

A majority of economists are also in favor of providing businesses with further relief from high energy costs (54 percent). Compared with households, support for providing businesses with relief is much more restrained (−29 percentage points). 31 percent are against further relief for businesses. Supporters want to target the relief on very different groups. Some support relief for energy-intensive companies, while others focus on small and medium-sized enterprises. Still others call for support in the event of liquidity problems and for companies that are threatened with insolvency as a result of high energy prices. In many cases, the economists demanded that relief should be provided only in the form of loans and that incentives to save energy should not be undermined.< /p>

Infographic, Economists Panel October 2022

Slight Majority of Economists Favor Nationalizing Energy Utilities 

With regard to the energy utilities hit by the energy crisis, 55 percent of survey participants support nationalization. They see no alternative ways to secure supply and prevent domino effects. They point to the extraordinary circumstances and emphasize that the current imbalances are not an expression of inefficiencies. Compared with other measures, they see the positive aspect of nationalization in the fact that the state acquires a say in the companies and can sell its share after the end of the crisis – if necessary, as in the case of Lufthansa, at a profit. With regard to nationalization, the proponents qualify that systemic importance is a necessary criterion. In contrast, 26 percent of economists reject nationalization even in the current energy crisis, while 19 percent are unsure. They share a fundamental skepticism toward the state as an entrepreneur, since it suffers from efficiency and incentive problems. Instead of nationalization, they favor loans and subsidies for the ailing companies to ensure the continued supply of energy

Infographic, Economists Panel October 2022

Economists Divided over Excess Profits or Windfall Tax

The question of imposing an excess profits or windfall tax on generators of renewable, nuclear, and coal power is divisive: while 46 percent of respondents support such a tax, 43 percent oppose it. Supporters of the tax point to the enormous financing requirements for the proposed relief and demand that companies profiting from high energy prices should contribute to overcoming the energy crisis. Moreover, they attribute the profits not to good corporate governance but to Russia’s war of aggression. By introducing the tax in the context of this exceptional situation, they expect it to have no influence on market incentives and future investments in renewables. In contrast, opponents of the tax point to the difficulty of defining excess profits and distinguishing them from “normal” profits. They see the danger that this sets a precedent for the future skimming of excess profits. In addition, they believe the tax would be legally difficult to implement, would set the wrong incentives, and would create uncertainty.

Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022

19 out of 20 Economists Expect Recession in Germany

For the coming winter, about half of the respondents do not expect blackouts or rationing of electricity and gas (47 percent). However, the other half of economists expect blackouts or rationing (33 percent) or are unsure (20 percent). The participating economists agree on the economic outlook for Germany: 94 percent expect Germany to slide into recession as a result of the energy price crisis. This means their outlook is similarly pessimistic to that of German companies. In September, the ifo Business Climate Index slipped to its lowest level since the start of the Covid-19 pandemic in 2020.

Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022
Infographic, Economists Panel October 2022
Article in Journal
Klaus Gründler, Niklas Potrafke, Marcel Schlepper
ifo Institut, München, 2022
ifo Schnelldienst, 2022, 75, Nr. 11, 54-57
Contact
Prof. Dr. Niklas Potrafke

Prof. Dr. Niklas Potrafke

Director of the ifo Center for Public Finance and Political Economy
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