Reaching net zero while safeguarding competitiveness and social cohesion in Germany

Zeev Krill, Robert Grundke and Marius Bickmann

No 1768, OECD Economics Department Working Papers from OECD Publishing

Abstract: Germany intends to reach climate neutrality in 2045, tripling the speed of emission reductions that was achieved between 1990 and 2019. Soaring energy prices and the need to replace Russian energy imports have amplified the urgency to act. Various policy adjustments are needed to ensure implementation and achieve the transition to net zero cost-effectively. Lengthy planning and approval procedures risk slowing the expansion of renewables, while fossil fuel subsidies and generous tax exemptions limit the effectiveness of environmental policies. Germany should continue to rely on carbon pricing as a keystone of its mitigation strategy and aim to harmonise prices across sectors and make them more predictable. Carbon prices will be more effective if complemented by well-designed sectoral regulations and subsidies, especially for boosting green R&D, expanding sustainable transport and electricity network infrastructure, and decarbonising the housing sector. Subsidies for mature technologies and specific industries should be gradually phased out. Using carbon tax revenue to compensate low-income households and improve the quality of active labour market policies would help to support growth and ensure that the transition does not weaken social cohesion.

Keywords: Carbon Pricing; CGE climate modelling; Climate Policy; Energy; Environmental Taxation; Germany; Green Investment; Industrial Policy; Labour Market Analysis; Plant Closure; Social Consequences of Mitigation Policies; Transport (search for similar items in EconPapers)
JEL-codes: C68 H23 H54 J65 Q42 Q48 Q54 Q58 R48 (search for similar items in EconPapers)
Date: 2023-07-17
New Economics Papers: this item is included in nep-cis, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:oec:ecoaaa:1768-en

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