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The energy price shock endangers the climate transition

2022-02-19T09:50:28.303Z


The energy price shock endangers the climate transition Created: 02/19/2022, 10:46 am Prof. Sebastian Dullien is head of the Düsseldorf Institute for Macroeconomics and Business Cycle Research (IMK). © N. Bruckmann/M. Litzka/dpa The prices for electricity, gas and fuel have risen sharply recently. This hits low-income households particularly hard, because they have less money available for othe


The energy price shock endangers the climate transition

Created: 02/19/2022, 10:46 am

Prof. Sebastian Dullien is head of the Düsseldorf Institute for Macroeconomics and Business Cycle Research (IMK).

© N. Bruckmann/M.

Litzka/dpa

The prices for electricity, gas and fuel have risen sharply recently.

This hits low-income households particularly hard, because they have less money available for other consumption.

This is a dangerous development for the acceptance of climate change, writes the director of the institute for macroeconomics and business cycle research (IMK), which is close to the trade unions, Prof. Sebastian Dullien in the guest article.

Düsseldorf - Petrol and diesel are currently more expensive than ever at German pumps.

And all those who heat with natural gas are threatened with a price shock in the coming months: the prices for gas imports* have quadrupled compared to the previous year.

If the gas suppliers pass the increase on to end customers, many could face a doubling of their heating bills.

This energy price shock is currently accompanied by two narratives in Germany: First, many people believe that the price shock comes from CO2 pricing through higher energy taxes.

Second, it is often claimed that this price shock is good news for the climate, because energy is finally getting really expensive.

False Narratives

In fact, both narratives are wrong.

The CO2 tax accounts for only a fraction of the price increase of the past twelve months.

Of the almost 40 cents that diesel has become more expensive since January 2021, 1.6 cents are due to the increased CO2 tax on January 1st, 2022, the rest is due to the price increase for crude oil on the world markets.

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Climate change, supply bottlenecks, corona pandemic: Rarely before has interest in the economy been as great as it is now.

This applies to current news, but also to very fundamental questions: How do the billions of euros in Corona * aid and the debt brake go together?

What can we do about the climate crisis without jeopardizing our competitiveness?

How do we secure our pension?

And how do we generate the prosperity of tomorrow?


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The ratio is even worse for natural gas: in January of this year, gas suppliers charged a little more than 12 cents per kilowatt hour for new customers, around 5.5 cents more than in the first half of 2021. The CO2 tax rose by just once during the same period 0.15 cents per kilowatt hour.

The second misconception is that this sudden and massive price increase* is good for the climate.

Unfortunately, that too is wrong.

It is true that economists do not dispute that, in the long term, a rising price for CO2 emissions or, alternatively, for fossil fuels is an important instrument for climate change, but the word “long-term” is important here.

Rising energy prices hardly help the climate

As we know from dozens of studies, an increase in energy prices will hardly help the climate in the short term.

Private households hardly react to higher prices in the short term when consuming diesel and petrol, but especially natural gas.

The reason is clear: Most of those who drive a lot are dependent on the car because there are usually no good alternatives.

And when heating, you can set the room temperature a little lower for a short time and put on a wool sweater, but big savings cannot be achieved in this way.

Therefore, with rising energy prices, private households are also more likely to save on other expenses.

However, if people cannot change their energy consumption in the short term, energy price shocks mainly have distributional effects: Because energy is becoming more expensive, households have less money for other consumption.

And because poorer households typically spend a larger proportion of their income on household energy than the rich, they are particularly hard hit.

Energy transition: Danger of declining acceptance

But if prices rise and poor households are burdened without an effective contribution to climate protection becoming apparent, political support for climate change will be undermined.

Many people who actually support the energy transition politically are likely to lose their appetite for further energy taxes in view of the skyrocketing heating bills in the coming months.

It is to be expected that the public discussion will not differentiate between what CO2 pricing was and what the global energy markets were.

The government under Gerhard Schröder had to experience this after winning the 1998 election.

At that time, the moderate increases in the tax on petrol and diesel came into force at the very moment when the price of crude oil was rising on the world markets.

In the public discussion, the eco-tax was mixed up with the general rise in oil prices.

Climate change is a long-distance run, not a sprint

The eco-tax quickly became so unpopular as an idea that the Red-Green Party put the project of continuously increasing the price of energy on hold in the second legislative period.

But climate change is a long-distance run, not a sprint.

In order to be successful, the political support of the population must be maintained.

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But don't the currently high energy prices encourage people to swap their heating for CO2-neutral technologies or the combustion engine for an e-car?

If people are rational, then probably not.

After all, future energy prices are important for investment decisions, not current ones.

Future markets signal relief

And there are some indications that prices will fall again after the energy price shock: On the futures markets, gas for delivery will be traded at noticeably falling prices as early as 2023, and for 2026 suppliers will be able to buy gas again almost at pre-crisis prices.

Anyone who is now considering replacing the gas heating system and heating with the heat pump from 2023 onwards may be doubly pinched: they have taken the high costs with them, but missed out on the cheaper gas winters of the future.

How to twist and turn it: Reliable and moderately increasing energy prices help the climate*.

Price caprioles, as we see them now, unfortunately not.

About the author:

Prof. Dr.

Sebastian Dullien is Scientific Director of the Düsseldorf Institute for Macroeconomics and Business Cycle Research of the Hans Böckler Foundation and Professor of Economics at the Berlin University of Applied Sciences.

*Merkur.de is part of IPPEN.MEDIA.

Source: merkur

All news articles on 2022-02-19

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