Is Europe in line with its environmental goals? Does the war matter for Europe’s businesses? These questions are resonant given Germany’s clean energy path. Read on for insights on whether the German clean energy path is aligned with the 1.5 degree warming target, EU proposals to tackle tough issues like home heating and transportation, and the war’s impact on Germany’s businesses.
German clean energy path aligned with 1.5 degree warming limit
The German government is considering a wide-ranging renewables reform that will move the country closer to becoming almost 100 percent renewable by 2035. The country’s climate and economy ministry has proposed higher renewable capacity targets for 2030, which would align Germany’s energy goals with the 1.5 degree warming limit. However, the German economy will need to wean itself from its current appetite for gas to secure supply for the coming winter.
Germany has committed to a coal phase-out by 2038, but this is too late. The European Union needs to achieve 0% coal share in its electricity sector by 2030. That means Germany would need to phase out coal eight years earlier than it currently intends to. The country’s transport sector still has a long way to go. Germany’s 2030 sectoral target is not adequate as current emissions have only declined by 11%, leaving a gap of 50 MtCO2e over the decade.
To reach the Paris Agreement targets, developed nations must contribute to the global effort to meet the goals of the agreement. In Germany’s case, this means making an enormous contribution to climate finance for mitigation and supporting developing countries. The assessment above refers to Germany’s national emissions targets. The contribution of wealthy developed countries to global climate action must also include different dimensions of climate finance, such as actions to stop the development of fossil fuels abroad.
In addition, the new government must provide the necessary funding and mandate for foreign climate policy. India and Pakistan could be partners in the next “round” of negotiations, if the new government takes the right steps. These countries could become landmarks in bringing the world towards a 1.5 degree limit. In this regard, it is crucial that the new German government take the right decision and make the right decisions.
Currently, Germany’s industry sector is its second largest contributor of greenhouse gas emissions, and its carbon intensity is relatively stable. To reach the Paris Agreement benchmarks, it is crucial to create a clear policy framework, including carbon contracts for difference. This would help to secure investments in clean energy technologies and reduce emissions. The government may also consider offering investment security to its citizens. It’s unclear exactly how these measures will affect Germany’s economic growth and employment.
Germany’s climate action tracker outlines the latest climate-related goals for its economy. Renewable electricity must account for between 55 and 98 percent of global electricity by 2030. Solar and wind dominate the renewable electricity market, while other sources of energy complement them. The UN High Level Champions’ Race to Zero campaign also helps to align key sectoral actors with the Paris Agreement. It is hoped that this increased political pressure will result in important decisions pertaining to climate-related issues.
EU proposals to tackle tough issues of home heating and transport
The EU’s climate change package is largely based on two main pillars: advising support for businesses and reducing carbon emissions. The European Commission wants to set up a second ETS to cover fuels used in transport and home heating. This would mean higher fuel bills for consumers, but it is unlikely to lead to any reduction in greenhouse gas emissions. In order for the climate change package to be successful, it must be cost-effective and socially fair. The right to energy coalition criticised the package, saying it was inadequate, and that it would expose energy-poor people to higher energy costs.
The new package will also require EU countries to make their buildings more energy-efficient and to reduce their carbon emissions. The goal is to make almost half of the energy consumed in buildings renewable by 2030. To meet this target, EU countries must increase the use of renewable energy in public buildings by 1.1 percent per year. Furthermore, the EU’s Commission wants to see public buildings undergo energy-efficient renovations at a rate of three percent annually.
The EU has already begun translating these goals into policies. Some of the more notable examples include CO2 standards for cars, reform of EU energy taxation, and the CBAM proposal. There is still much more to do, however. In addition to requiring companies to use cleaner energy, the EU should also require data centres to provide waste heat to businesses. If these three pillars are implemented, the EU would be on track to meet its target of reducing carbon emissions by at least a quarter by 2020.
Lastly, the European Union’s carbon budget contains ambitious targets. To reach its 2050 net-zero goal, the EU needs to cut carbon emissions by 31% by 2030. With the new carbon budget, the EU is targeting home heating and transport as priority areas. The Commission is phasing out petrol cars by 2035. This ambitious plan also proposes reform of the emissions trading system to include road transportation and heating. Fossil fuels will be subject to increased taxes.
In addition, the EU Commission is proposing to use peatlands and forests as carbon sinks. This new regulation will create binding annual CO2 removal targets for the land sector. By 2030, the EU aims to have the land sector achieve climate neutrality. This will affect every European. If these new regulations are passed, it will ensure that the climate of the European Union is capped by 2050.
While the European Commission is seeking to implement a carbon trading scheme for shipping, it is not introducing it in full yet. A senior EU official said that the EU does not pretend to regulate the entire world, but rather regulate the EU. However, this package has several other elements. It includes the repeal of tax exemptions for shipping fuels and an attempt to increase the use of sustainable fuels. It is a first of its kind and needs to be implemented gradually.
Impact of sanctions on German businesses
The impact of sanctions on German businesses is largely unknown. However, there are many major companies that export to Russia, including SAP, a world-leading software company. While the company’s revenue comes primarily from Europe and other countries in the C.I.S., like Russia, it also has business relationships with other countries in the region. Because of these connections, companies such as Siemens and ThyssenKrupp AG have considerable exposure to Russian consumers.
Merkel has warned against a full-scale economic confrontation with Russia, and she has been met with criticism from former German chancellors, who reject a confrontation with Russia. But German industry has been quiet since Siemens CEO Joe Kaeser met with Putin, describing the Ukraine crisis as “short-term turbulence.”
Increasing energy and food prices aren’t going to boost the German economy. However, the increase in prices won’t result in a decline in inflation. As a result, many businesses will be affected. Politicians are rallying the public to see sacrifices in a broader light. But in the short-term, the impact on German businesses could be huge. So far, the BGA is trying to minimize its impact.
Because of the uncertainty, the Bundesbank is focusing on companies that export to Russia, including Daimler, Siemens, and Volkswagen. While the companies that export to Russia may not be as big as those that export to the rest of Europe, they will be disproportionately affected by the sanctions. Moreover, the GF is not representative of the country’s largest companies. In Germany, smaller companies have greater exposure to local German markets, and thus will experience greater impact from the sanctions.
While many German companies will benefit from a lifting of EU sanctions on Russia, others will not. Those companies that export to Russia may lose their Russian market, including industrial products. Other companies may find that exporting Russian oil and gas would become impossible, since they have to deal with a country that is unable to provide these commodities. So the German government needs to act quickly to protect its domestic industry from being hit by sanctions.
The US-led initiative to impose sanctions on Russia may have a longer-term impact than the short-term effects. For example, the OECD government may decide to penalize US companies that do business in those countries. Furthermore, this may result in retaliation from US companies. The US-imposed economic sanctions, such as the Helms-Burton Act, threaten to penalize foreign companies. Ultimately, the US government will be left with little choice but to act.
The EU sanctions, meanwhile, cover a wide range of entities. Those with more than 50% of shares in prohibited entities, as well as those acting on their behalf, are all subject to sanctions. Moreover, sanctions are also applicable to entities that are based in the UK, as well as to entities that conduct business in the territory of the UK. There are many legal complications associated with the implementation of sanctions, and German businesses should be particularly careful to avoid being caught in the crossfire.
