Rapidly increasing energy costs: How do we help the industry?

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ThyssenKrupp-Stahlwerk: It is important that the continuation of production becomes sufficiently attractive

Photo: Marcel Kusch / dpa

At the moment the industry is in a multiple bind:

• It has long been suffering from global

  supply bottlenecks

  resulting from the upheavals during the corona crisis.

  These bottlenecks are exacerbated by the effects of the Ukraine war.

• As a result, many industrial sectors are also confronted with

  export

  losses - not only to Russia and Ukraine, but also to other customers, who in turn are suffering from the economic consequences of the war.

• After all, the

  energy cost

  increases are becoming existential, especially for energy-intensive companies.

  It's about sectors such as chemicals, steel, glass, paper and logistics.

In all of this, one has to realize that the manufacturing sector has been under pressure for years.

In 2018, it fell into a global industrial recession.

Then came Corona, then the attack on Ukraine.

And meanwhile, a profound transformation is underway, driven by digitization and decarbonization.

The transformation was forced by Corona, now again by the war.

So how do we help the industry?

Because she is facing several challenges at the same time, different solutions are required.

Tailor-made instruments offer:

• short-time work

  in the event of trade disruptions,

• Production

  premiums

  to avoid production stops due to energy prices and

• Energy depreciation

  as an investment support program

  for transformation

  .

If used well, these instruments can make an important contribution both to overcoming the crisis and to reshaping the economy for the future.

In the economic and financial crisis of 2009 and in the corona crisis, the instrument of

-time work was a great help.

Short-time work makes sense to cushion temporary and external economic shocks on the labor market.

The workforce can be kept on board until business picks up again.

In fact, the latest research results show that so far the main response to supply bottlenecks has been short-time work and much less with job cuts.

Short-time work is also suitable for cushioning temporary export shortfalls, as happened on a large scale in 2009.

Because in both cases there are production losses that cannot be avoided in the short term.

Incentives and flexible options for further training during short-time work are important in order to use the downtime to develop the skills of the workforce while the labor market and requirements continue to transform.

In addition to short-time work, fixed costs could also be partially offset in the event of supply bottlenecks and export failures.

However, this should only be considered if farms are severely affected by the consequences of the war and sanctions.

The principle of corona

aid could be temporarily expanded for this purpose.

In view of the high energy costs, short-time work would also be an option for energy-intensive companies, but it would actually not be the ideal instrument here.

The same applies to bridging aid.

Because both only apply explicitly if economic activity is reduced.

In the event of high energy costs, however, production could also be continued.

This may not make economic sense, but it would make economic sense: because production stops reduce income and the public sector would have to pay for short-time work benefits.

In the event of bankruptcies, the costs would be even higher.

In addition, the supply bottlenecks would be exacerbated by the failures - so there would be second-round effects.

Sure, energy consumption would also drop, but short-term, damaging shutdowns are certainly not the right way to do this as long as there is no rationing.

If you want to promote the economy, then you should use instruments that support the progress of production - and not the loss of work.

Premiums instead of price reductions

One possibility would be to reduce the energy price for the companies concerned through state subsidies or tax rebates.

This would allow production to continue.

However, that would also take away any incentive to increase energy efficiency because of the high prices.

But that is precisely what is essential, because a different way of generating and dealing with energy is unavoidable for the economy as a whole.

There were good reasons for years of discussion about how to make energy more expensive in regulatory terms.

The market incentive must not be switched off for climate and geopolitical reasons.

In order to achieve both, i.e. the continuation of production and the market incentive, it makes economic sense to work with flat-

for financial support.

Depending on their turnover, companies would receive a fixed amount, provided that they

reduce production and employment.

The incentive effect of high energy prices would thus remain fully intact for all market participants.

In order to limit deadweight effects,

should be funded, based on the existing definition in the Renewable Energy Sources Act.

One could also orientate oneself on industry values ​​in order not to reward individuals with particularly low energy efficiency.

And here, too, not all cost increases can be compensated for, because entrepreneurial risks do not lie with the state.

However, it is important in the design that the continuation of production is sufficiently attractive.

The premium would be booked as operating income.

If a profit is then made despite the high energy costs,

.

The decisive factor is that the costs for short-time work or unemployment benefits as well as tax and contribution losses due to production stops and the consequences can be avoided.

Default instruments such as short-time work, bridging aid or, in extreme cases, loan guarantees and recapitalizations in the sense of the Economic Stabilization Fund (WSF) should only be considered in the event of the negative scenario of actual energy rationing.

accelerate transformation

premium designed as described

would be about short-term support.

In addition, from a climate policy and geopolitical perspective, there is no way around ecologically transforming the economy.

In addition to the market incentive of high energy costs, we need trend-setting support and incentives in the form of an

.

This can be organized via special

write- off

.

The additional depreciation would reduce the tax burden and allow part of the investment to be financed directly.

Rules of this kind have already been tried and tested: one could orientate oneself to the existing provisions of the Income Tax Act for special depreciation for capital investments by small and medium-sized companies.

If the depreciation results in accounting losses, these should be able to be offset against earlier profits, and the possibility for

would have to be extended.

Secure professionals

Such

would bring about an anticipatory effect from a fiscal point of view, because the write-off would otherwise be spread over a longer period of time.

In the medium term, therefore, no tax revenue was lost.

But in a critical situation, crucial investments can also be pushed in the short term.

Current research results show that climate policy measures do not have to be a job killer.

On the contrary, we will have to make an effort to secure skilled workers in order to provide the necessary labor potential, especially in construction, trades and energy technology occupations.