ifo Institute Sees Pros and Cons in Climate Package

“It’s good that CO₂ pricing forms the core of the climate package, and that the plan now incorporates traffic and buildings as well. It’s also right that we should be offering relief for those affected to a disproportionate extent,” says Karen Pittel, Director of the ifo Center for Energy, Climate, and Resources. “But if the price for the certificates is in fact set until 2025, then this is deceptive packaging. Not imposing an overall limit on the amount of CO₂ misses the whole point of an emissions trading system. And if the prices are too low anyway, one can hardly expect a substantial reduction in emissions,” she warns. A price corridor with a minimum and a maximum price, or the flex-price mechanism proposed by ifo, would be much more effective, Pittel says.

“Another problematic aspect of the climate package is that it includes many supplementary measures that are expensive and could dilute the effectiveness of CO₂ certificate trading. For example, the oil heater ban is inconsistent with certificate trading in the building sector. But one bright spot is the planned expansion of public transit,” says Clemens Fuest, President of the ifo Institute. He stresses that credibility is key. “The government has to limit the amount of CO₂ permitted, but then create a good deal of latitude within that. That’s the only way to stimulate enough private investment in CO₂ reductions and the technologies to help achieve them,” Fuest explains, continuing: “Climate protection is a task for all of society, so it would be preferable to have a consensus across all parties that extends beyond the legislative period and helps establish a reliable framework.”