© shutterstock | Sunshine Seeds



The German Federal Minister for the Environment and the German mechanical engineering industry were both in the headlines with their concepts for a CO2 price tag. In a summer dominated by a heatwave and an intense debate on climate change, this high-profile encounter took a surprising turn.

By Holger Paul

Reports claimed that the Mechanical Engineering Industry Association VDMA was proposing a price of 110 euros per ton of carbon dioxide (CO2) - four times as much as the Minister. Svenja Schulze, who is not known as a particular friend of the industry, apparently wanted a price of "just" 35 euros per ton of CO2. Had the association, the mouthpiece of so many traditional, medium-sized family businesses, really outbid the Minister who, with her plans for a German climate protection law, has positioned herself as more of a disciplinarian of the entire industry?

The truth is much more complex - as it usually is when it comes to climate protection and climate policy. The models proposed by the mechanical engineering industry and Svenja Schulze are worlds apart, so reducing them to the price of a ton of CO2 is necessarily over-simplistic and presents a distorted result.

What VDMA actually proposed was a comprehensive model that includes all energy sources and fundamentally changes the entire energy pricing system. After all, the current system of taxes, levies and charges in the energy sector has grown up over time and is entirely illogical. The VDMA model would put an end to all that. Its core elements are as follows:

  1. The state should not gain additional income from such a system change (neutrality of revenue).
  2. Individual forms of energy are not preferred automatically (neutrality of technology).
  3. The price of energy would comprise a CO2 price and an infrastructure component, for example for maintaining the gas grid or roads. All other levies, such as electricity tax and the levy set by the German Renewable Energy Sources Act (EEG), would be abolished. 

What matters is that all energy sources are priced based on their CO2 emissions. As a result, electricity would become cheaper for all consumers - the higher the proportion of green electricity in the total electricity mix, the lower the cost. In contrast, consumption of fossil fuels would become more expensive, with the highest percentage rise seen for diesel and heating oil. A combined system like this would start with a price of 110 euros per ton of CO2, which would have to gradually rise. This creates an economic incentive to use more environmentally friendly energy sources in the future. "It is all about controlling the use of energy sources. Energy sources that produce lower CO2 emissions should be favored," explains VDMA President Carl Martin Welcker.

So what about the Minister? She shares a similar goal: to make fossil fuels more expensive. But Svenja Schulze wants to change the system using a CO2 tax that would be paid on top of the existing levies, albeit only in the transport and building management sectors. The 35 euros per ton she proposes is merely a starting price - according to her model it would rise to 180 euros per ton of CO2 by 2030. In the future, people should be rewarded for climate-friendly driving and heating, explained Schulze. In this model, the state would receive the additional funds raised through the CO2 tax, which would then have to be laboriously returned to the people. Numerous details remain unclear, probably because the Minister is unwilling to show her hand too early before the crucial negotiations on the climate protection legislation.

Whatever one's opinion of the two models, direct comparison is difficult. The analysis presented by VDMA takes a much broader-based approach, but does not propose setting up a new system of redistribution. "Instead of making a few adjustments here and there, today's energy pricing needs to undergo a transformation designed for the long term that would also encourage sector coupling," explains Naemi Denz, climate and energy policy spokesperson at VDMA.

After all, even in the mechanical engineering industry there is no doubt that climate change caused by humans is real and that the goals of the Paris Agreement have to be met! This demands global action and technologies - some already exist, while others still need to be developed or refined. The mechanical engineering industry can pave the way here. Last but not least, a price is needed for greenhouse gas emissions that is designed in such a way that it provides incentives to invest quickly in low-CO2 energy sources or energy efficiency, without eliminating the livelihoods of entire industrial segments overnight.

The enthusiasm for climate protection reawakened by the "Fridays for Future" movement is right and important - but it must not disguise the fact that, in many people's view, bans and new charges are off-putting and make them feel overwhelmed by climate protection. People have long been aware that climate protection comes at a cost - and probably a higher one than ever before. That makes it all the more important to create economic instruments and a framework that remains reliable in the long term, in order to offer industry and the people equal opportunities to play a part in reshaping the economy for better climate protection.

We must not forget: The German transition to alternative energies was launched 19 years ago by the first Renewable Energy Sources Act and for a while was considered a global export success. Today, it is seen more as a missed opportunity. In Germany, state-of-the-art gas and coal power stations are not allowed to operate because they are loss-making, while old brown coal power stations with a severe environmental impact continue to produce electricity and the shortfall is made up with imported electricity from nuclear power stations in neighboring EU countries. Thousands of kilometers of cables are still needed to carry the green electricity from the offshore wind farms to southern Germany. And it is only now, 20 years after their launch, that the first solar parks and wind farms are competitive on the market without state aid.

It is a sad picture. The transition to alternative energies was an enormous project with completely fragmented project management and remains so to this day. Last year, the Federal Audit Office complained that there were 34 units in four departments dealing with the topic at the Federal Ministry for Economic Affairs and Energy alone - as well as five further ministries and all the federal states. There is no overarching planning or coordination.

The picture is just as bleak today, despite the ever greater challenge of climate protection. That is precisely why VDMA is advocating a reform of CO2 pricing that incorporates the entire system of energy sources from the start. "Policymakers need to ensure that CO2 pricing does not become a purely artificial means of making energy sources more expensive without achieving any reduction in emissions," warns Naemi Denz. "We are always talking about transforming the economy in order to achieve our climate protection goals. But this transformation will only work if we do away with obsolete state regulations and finally switch to new concepts." It is all a long way from the famous scoop of ice cream, whose price former German Federal Minister for the Environment Jürgen Trittin once stated was the only additional burden to be placed on the people. Ambitious climate protection is expensive - so it is all the more important that it is made manageable for everyone with state-of-the-art technology and pursues a logical concept.    

Further Information

VDMA Forum Climate and Energy

Holger Paul, VDMA Communication Department.

Related sections