Halfway to Climate Neutrality: What’s the Next Step?
Impulse by Julia Bläsius, Director of German Operations at Agora Energiewende
Since 1990, Germany has reduced its greenhouse gas emissions by 48 percent – meaning it is almost halfway to achieving climate neutrality. A significant contribution to this comes from wind farms and solar power. In the second phase, the expansion of renewable energies will form the basis of a climate-neutral economy, as renewables provide affordable electricity for the transition away from fossil fuels – most of which are imported fuels used in buildings, transport, and industry.
The planned expansion of wind and solar energy could reduce the trading price of electricity by almost a quarter in 2030 in comparison to capping the expansion targets. Government subsidies, such as a reduction in electricity tax and grid fees, help to cushion the high energy prices resulting from the gas crisis in the short term. However, the best way to guarantee low electricity prices in the long term is by investing in renewables. According to our calculations, one euro of subsidy reduces the trading price of electricity by between €1.60 and €1.90, depending on the level of demand for electricity.
A climate neutral power system also requires the appropriate infrastructure. In terms of the grid, the general rule is the more flexibility, the lower the costs. Flexible consumers such as batteries, heat pumps, and electric cars can cushion peak loads in the grid. This requires a modern network charge system which provides price incentives for flexible consumption. Efficient grid operation, including through digitalisation, reduces the need for expansion and also eliminates the need for permanent subsidisation.
Green and affordable electricity is the basis for the transition to climate-neutral technologies in buildings, transport, and industry. During the first phase of the path to climate neutrality, CO₂ savings were achieved mainly on the supply side – in the energy industry – but now it is important that the demand side also starts to switch more and more to climate-neutral technologies.
Around 80 percent of the investments necessary for climate neutrality are made by businesses and households. Three quarters of these investments are made anyway as part of planned modernisation measures, such as replacing vehicles or heating systems. It is crucial here that decisions in favour of climate-neutral technologies are made today to reduce emissions, lower dependence on oil and gas, and protect consumers from price rises as a result of geopolitical crises or rising CO₂ prices. Furthermore, climate-neutral technologies are also drivers of innovation and strengthen Germany’s long-term competitiveness as a business location.
Germany’s goal is to be climate neutral by 2045 – this is stipulated in both the German Federal Climate Protection Act and the coalition agreement of the new federal government. This requires key decisions to be made during this legislative period. The state can ensure planning security, leverage investments, and thus pave the way to climate neutrality in an economically and socially acceptable manner by finding a balanced policy mix of CO₂ pricing, market regulation, subsidies, and infrastructure expansion. The use of public funds should send a clear signal that it is worthwhile for businesses and private households to invest in climate-neutral solutions.
Julia Bläsius is the Director of German Operations at Agora Energiewende, an independent, public-interest think tank which develops scientifically sound and politically feasible concepts and strategies for climate neutrality.