The energy crisis is hitting Germany hard. It shows how vulnerable our economic model is, which is based on producing high-quality export products at affordable prices using oil, gas and coal. Energy price explosions therefore threaten our prosperity. What must happen now.
The crisis did not begin with Russia’s war of aggression in Ukraine. In the case of gas, a recovering global economy met inelastic supply as early as 2020. Americans, Qataris and other liquefied natural gas (LNG) suppliers have not been able to increase their supply despite rising demand.
In the electricity sector, the expansion of renewables has been insufficient for years, not least due to a lack of political support. In the case of solar, for example, the installed capacity in 2020 was only a little more than half of the value of 2012. Gas was used to absorb peak demand, but also to compensate for the phase-out of coal and nuclear energy, which was pushed ahead at the same time.
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The war in Ukraine created a “perfect storm”: Russian gas supplies gradually fell, the LNG market remained scarce, and the long-neglected alternative energy sources were non-existent. The result: maximum prices for both gas and electricity. The status quo ante in Russian-European energy relations will not be restored. This means that gas prices will remain high for the foreseeable future.
What should I do? The first thing to do is build resilience. Floating LNG terminals create additional import opportunities for non-Russian gas supplies, coal can replace gas in power generation, and oil helps in industrial processes. At the same time, price developments must be brought under control in order to prevent de-industrialization of the economic structure.
Professor Andreas Goldthau is director of the Willy Brandt School of Public Policy at the University of Erfurt and research group leader at the Institute for Transformative Sustainability Studies in Potsdam. The energy expert researched and taught at the University of London, Harvard and the Central European University.
Because the energy costs of competitors in the USA, for example, are significantly lower than in Europe. The announced shutdown of production by the steel manufacturer Arcelor-Mittal, increasing imports of energy-intensive chemical products and the fact that half of medium-sized companies are operating at their financial breaking point clearly show the need for action.
In principle, the federal government’s “defensive umbrella” is the right approach, not least in order to maintain social peace, as well as European-coordinated steps to curb the development of gas prices. And of course it means: save.
Not everything has been exhausted here, and innovative measures such as auction models for industry or information as a nudging strategy for changing individual behavior will help to leverage the potential that still exists. In the short term, these are the paths to be taken.
At the same time, however, one thing is clear: the best way to lower the price of fossil fuels is to expand renewables. This is simply due to the fact that in many places these are the most cost-effective source of energy. In fact, a lot has been initiated in a short time: The European REPowerEU program provides 290 billion euros for the expansion of renewables, Germany, Denmark, Belgium and the Netherlands are preparing to transform the North Sea into a green power plant, and the federal government has set itself the goal of a climate-neutral electricity mix by 2035.
Every step along the way creates more resilience and ultimately reduces exposure to volatile fossil markets. The task now is to speed up the processes. Because an offshore wind farm that is planned today will not be complete until 2026.
Germany is 84 million people. Germany is the fourth largest economy in the world. Germany likes to present itself as modern and cosmopolitan. But there are many places in our country’s engine room that are stuck. The effects of Corona and the Ukraine war are clearly noticeable. Of course, we are by no means lost. On the contrary! FOCUS online has asked bright minds from science and practice, from associations and think tanks to draw up a roadmap in their respective fields for the future of our country, for Germany 2025. The question was what Germany must do now in order to be successful in the short, medium and long term. For example in the energy supply, internal and external security, public finances, the fight against pandemics and many other topics.
In addition, we have to get to the demand side, for example in the heat supply. Up to a third of German gas consumption can be sustainably reduced through energy-efficient refurbishment of existing buildings, the conversion of urban district heating to renewables and incentives to use alternative technologies such as the much-discussed heat pumps. For this purpose, regional peculiarities such as the Berlin milieu protection would have to be reconsidered and monument protection regulations would have to be relaxed.
Nonetheless, the coming years will be about nothing less than reinventing the German economic model. The prerequisites for this are in place. Clean tech solutions made in Germany will convince worldwide if they can hold their own at home. Green steel and sustainable automobiles will also find their market, which will continue to be in the high-price segment.
But one thing is also certain: Germany’s industrial structure will change in the coming years, and some sectors will make way for something new in the spirit of Schumpeter’s creative destruction. It is therefore important to invest with all your might in the decarbonized future, and thus in the markets of tomorrow, which will create added value and prosperity.
Now the economy is asked to develop products and business models that take into account a structurally changed energy market. The climate and transformation fund, which is endowed with 200 billion euros, can support industrial innovation processes and decarbonization.
The energy crisis anticipates an inevitable development due to the climate crisis. Instead of in the 2030s, as envisaged in the EU energy transition plans, it will happen a decade earlier and therefore with much greater pressure to adapt. Transition processes create uncertainties.
A central focus must therefore be on taking people with you. Political goals must be clear, the economic benefit tangible, and public communication open and transparent. This generates support and the willingness to support the fundamental change.
And it must be clear: Germany is part of a common European market. The industrial division of labor and the symbiotic economic relations with Northern Italy, Central and Eastern Europe or the Benelux region simply prohibit German going it alone. Decarbonization succeeds together, or not at all.
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The largest gas field in Europe is located just a few kilometers across the German border in Groningen in the Netherlands. But for 40 years, far less has been funded here than would be possible. It is expected to close completely next year. The gas causes serious problems.
