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Germany’s Green Energy Transition May Force Out Industry

The public discussion about Germany’s green energy transition has taken a new direction. The rise of electricity prices in Germany is suddenly no longer blamed on the billions spent for building solar and wind farms, biomass plants and power grids. Now it is “the industry” which is being blamed for its lobbying which has resulted in a variety of financial reliefs, compensations and tax exemptions and for abandoning the ‘community solidarity’ of this ‘national effort.’

The green industry lobby has agreed to this new line of attack after it came under increasing pressure by the rampant increase in costs. It’s new motto: it is not the absolute level of costs, which is the problem, but its unjust distribution.

Political horse trading in eco-tax policy

What makes this argument so dangerous is that it has a kernel of truth. It is true that the number of companies that are exempt from net charges, levies and green electricity taxes, has risen sharply in recent months. The number of companies which enjoy energy policy privileges go now far beyond the circle of those energy-intensive industries which have to compete with their products in international markets and thus would be eligible for exemptions.

Strompreisvergünstigungen für die Industrie

Government subsidies, tax relief and privileges for Germany’s energy-intensive industries; in billion of Euos

 

Behind this questionable political development appears to be a political deal: If we are to pay for the really absurd and inefficient expansion of expensive solar power in Germany to 52 gigawatts, you need to ensure a de facto eco-tax exemption for industry. There is an old method of finding a majority in politics in general, not just with regards the green energy revolution: criticism of escalating costs is not met by cost reductions, but by giving more money to the critics.

Energy policy is becoming an election issue

The only problem with this approach is that the Germans, with their rigorous application, tend to throw out the baby with the bathwater. Facts that apply to specific cases and to certain segments are used indiscriminately, especially during election campaigns. And the next elections are coming up: the Lower Saxony state election campaign this fall and winter is also the early start of the general election campaign in 2013.

Especially in Lower Saxony, which is so crucial for the expansion of the grid network and the generation of green energy, the issue of energy policy will determine the political debate. The new allegation that the rising cost of the green energy revolution is caused by industry examptions could readily get stuck in the minds of voters here – and stay there until the general election in September next year.

Some major buyers pay little for electricity

Nothing would be more dangerous, however, than to belittle and to trivialize the costs of the green energy revolution or distract from the issue at all. The ecological restructuring of Germany’s energy system would only be seen as a model worthy of imitation internationally if it had not been enforced with billions of handouts by a very affluent economy, but if it can be shown to be implemented economically and efficiently.

Consequently, a close look at the level of costs and their distribution is essential: it is true that green power reduces temporally the wholesale price of electricity on the electricity exchange and that some big buyers in the industry, as a result, can buy power relatively cheaply – especially if they have been exempted from both of environmental tax- and from network charges.

But this should not obscure the fact that private consumers and especially small and medium-sized businesses are heavily burdened by rising energy prices. Especially the medium-sized companies suffer doubly: first, from the higher energy costs in production and secondly because customers have less money in their wallets because of the rising electricity prices

It should also be remembered that the absolute level of wholesale prices is not really important for the competitiveness of the industry. The comparison with the electricity prices of other countries is much more important for the decisions regarding relocation or outsourcing.

And this comparison does not look good. Germany has the highest industrial electricity prices in Europe. With increasing costs of the green energy policy, relocating abroad is becoming increasingly attractive for companies, especially for energy-intensive businesses.

In the U.S., the energy price is currently falling dramatically. The recent development of shale gas production there means that the U.S. natural gas price is currently only about 20 percent of the European price. Thus the U.S. produces electricity much cheaper. This fact cannot simply be ignored by German chemical or metallurgical companies when it considers decisions about the location of a new factory.

The supply chains are at stake

The loss of such industries would have potentially disastrous consequences for Germany, however. The strength of Germany’s economy – compared to international standards – is mainly due to unusually intact and tightly knit supply chains. Basic industries are not the dinosaurs of “old economy” – already condemned to extinction. They are rather at the beginning of the value chains; with their quality and price level they set the starting point for all subsequent stages of industrial production.

German machine producers, car manufacturers and electrical industry are world leaders, because their engineers and skilled workers have an exceptional knowledge of the characteristics and abilities of their materials.

This expertise also stems from the geographical proximity and close ties of primary industry and processing companies in the manufacturing sector. This proximity should not be put at risk through negligence, allowing value chains to break because companies are driven abroad by unilateral cost burdens due to the green energy transition.

Translation Philipp Mueller

Die Welt, 7 August 2012