Energy Law Threatens Economic Growth in Germany
Germany’s Energy Efficiency Act could become a growth killer, writes ifo President Clemens Fuest in a new ifo Viewpoint: “Contrary to what its name suggests, the act doesn’t regulate energy efficiency – it caps all energy consumption in the country.” Final energy consumption is to be reduced by around 22 percent by 2030 compared to today. If energy efficiency continues to grow as fast as it has in the past, this goal would require the economy to shrink by 14 percent, Fuest argues. And if the economy is to continue to grow as previously expected, energy efficiency will have to increase dramatically in the future – three times as fast as in recent years.
“Whether the energy comes from climate-neutral sources such as wind or sun or from fossil fuels is not taken into account,” Fuest says. He points out that from 2008 to 2021, efficiency in energy consumption increased by 1.4 percent each year. However, on the conservative assumption that the economy will grow by 1.2 percent annually up through 2030, total consumption would fall by only 2.5 percent, not 22 percent.
Progress in efficiency would have to more than triple overnight to 4 percent per year. “This hardly seems attainable,” Fuest writes. He criticizes the German federal government’s concurrent plan to use subsidies to implement a low industrial electricity price, which will increase consumption. “All this gives the impression that energy policy has lost its bearings.”
ifo Viewpoint 248: The Energy Efficiency Law – A Growth Killer?
Germany’s energy policymakers are currently in the process of passing what’s known as the Energy Efficiency Act. In doing so, they are following the requirements of an EU directive. Contrary to the name, this law does not primarily regulate energy efficiency; rather, it caps the country’s total energy consumption. Final energy consumption is to be reduced significantly by 2030: by 26.5 percent compared with consumption in 2008, and by around 22 percent compared with today. It does not matter whether the energy comes from climate-neutral sources (such as wind or sun) or from fossil fuels.
