_ Yuri Kofner, economist, MIWI Institute. Munich, 28 March 2022.
Climate money
The climate policy of the German federal government, including the energy transition and the transformation of industry, contributes significantly to the rising domestic transport, heating and electricity costs. This effect is known as “greenflation”.
According to a recent study by KfW Research, the introduction of the national carbon tax in 2021 increased the CPI by 63 basis points year-on-year, accounting for over 20 percent of inflation in 2021 (3.1 percent overall).
In 2022, due to the national CO2 tax, fuel prices will increase by 7.4 cents per liter, heating oil by 8 cents per liter and natural gas by 0.6 cents per liter compared to 2020. By raising the CO2 tax to 65 euros per tonne of CO2 by 2026, the inflation rate will be 149 basis points higher than in a scenario without the carbon tax.
The national carbon levy has a proven negative impact on the German economy: its introduction in 2021 reduced consumption by 0.9 percent, investment by 3 percent, increased unemployment by 1 percent and reduced gross domestic product (GDP) by 0.8 percent.[ 1]
According to estimates by the Öko-Institut, the CO2 tax will cost an annual average of 20.8 billion euros by 2030, which is 0.6 percent of GDP or 251 euros per person.[2]
CO2 pricing is socially regressive because, as both the Ifo Institute and the DIW have established, it hits the lower and middle income groups hardest, who have to spend a relatively larger part of their income on transport, heating and electricity.[3] ,[4]
To compensate for this unpopular, anti-social, inflationary climate policy, the traffic light government is planning to introduce so-called climate money as a cash payment to private households and to finance it from the income from the national CO2 tax.[5]
However, the climate money has several disadvantages:
Climate money of around 130 euros per person and year, as is currently being discussed, would only compensate for half of the national CO2 tax burden.[6] This would mean no real socio-economic relief for citizens. An annual climate allowance of 50 euros per year and person, as proposed by the Bavarian SPD, would be even less social.[7]
In addition, the burden of carbon pricing is actually much higher: together with the planned expansion of the EU ETS and CBAM, it will amount to almost 390 euros per person per year (32.2 billion euros or almost 1 percent of GDP ).[8th]
Since greenflation is caused by an increase in prices on the supply side (CO2 tax) and is reinforced by additional supply-side factors (corona restrictions and supply bottlenecks), the introduction of climate money will be similar to that of so-called “helicopter money” and thus boost the inflation rate even further . Based on econometric studies by Martin P. et al (2021), one can assume that the introduction of this climate (helicopter) money will fuel inflation by at least another 15 basis points.[9]
In addition, the organization of the payment of the climate money would require a uniform account data register of over 83 million citizens, which would not only require a massive administrative effort, but also result in a significant violation of data protection, and thus enabling unacceptable state control over the citizens.[10]
Carbon contracts for difference
The energy-intensive industries remain an important part of the domestic economy. Their turnover corresponds to 10 percent of gross domestic product (GDP), but they also account for around a fifth of net electricity consumption and around 15 percent of total CO2 emissions.[11],[12]
In particular, the chemical industry such as Wacker Chemie or Linde, has a high value-added and innovation portfolio.
Germany’s federal government is currently planning to reduce the CO2 reduction by 65 percent by 2030 compared to 1990 and to make the republic “climate neutral” as early as 2045.[13] These decarbonization efforts are putting a huge strain on the economy, especially industry and energy-intensive companies. by the Association of Bavarian Energy and Water Management and the KfW support bank.[14],[15]
Empirical studies by the Kiel Institute for the World Economy show that Germany already has the second highest CO2 price in the world.[16]
Understandably, the energy-intensive industries are increasingly demanding relief and compensation measures from the government.[17] Otherwise, the consequence would be the relocation of their production abroad – de-industrialization called “carbon leakage”, which according to the Kiel Institute for the World Economy can cost the domestic economy up to 1.6 percent of GDP.[18]
The federal government is therefore considering the early introduction of industrial electricity prices and so-called climate protection or differential contracts (carbon contracts for difference, CCfD) as possible subsidy measures.
However, as a form of neo-dirigist green industrial policy, climate protection agreements have many disadvantages:
CCfDs are innovation-hostile and technology-closed, as the state selects, funds, and conserves certain technologies and production processes that could also prove inefficient even in a scenario of high global demand for zero-carbon products. This argument is also supported by a current study by the Energy Economics Institute at the University of Cologne.[19]
According to KfW Research, in order to achieve full decarbonization of the industrial sector, the government would have to finance contracts for difference worth almost 21 billion euros (250 euros per capita) annually. It is questionable where the financial resources are to come from in the already very tight budgetary situation.[20]
In this context: Climate protection agreements lead to subsidies for ten years or more. Such long-term financing is currently not possible under German budgetary law, since it binds governments for a long time – even after new elections and changes of government have taken place a long time ago.[21]
Carbon contracts only reduce the climate policy burden on energy-intensive companies, but do not eliminate it. As already mentioned above: The national CO2 tax, European emissions trading and the (planned) CO2 border adjustment cost the economy 390 euros per person and year (32.2 billion euros or almost 1 percent of GDP).[22]
Inequalities can arise when assessing the carbon intensity of a given production process, as illustrated by the controversy over tank-to-wheel vs. well-to-wheel assessment methods in the EU emissions reduction agenda.
Between 2011 and 2021, the price of EU CO2 allowances increased by a factor of 4, from 13 euros per tonne of CO2 to 54 euros per tonne of CO2.[23] Most forecasts assume that the price increase will reach 85 to over 100 euros per tonne of CO2 by 2030.[24] With such high certificate prices, CO2 contracts are also completely unnecessary.[25]
Eco tokens
As part of the package of measures for the “climate protection offensive”, the Bavarian state government is planning to introduce an “eco-token”, the official aim of which is to reward “sustainable” everyday behavior through “environmentally conscious” action. [26]
In practice, citizens should collect plus points in the form of digital sustainability tokens based on their behavior in order to then exchange them with various partners for various benefits and other advantages, for example in the form of a discount for visiting a public swimming pool.
These perks and advantages are to be financed with the help of state subsidies: in 2022 alone, almost 3 million euros are to be made available from taxpayers’ money in the Bavarian budget for subsidizing the eco-token project and the “development of a documentation system including an behavioural evaluation framework”.[27]
The ecotoken project led by the State Ministry for Digitization is an extremely questionable and potentially anti-freedom development, as it represents state intervention in the decision-making mechanism and consumer behavior of citizens (so-called “nudging”) using “gamified” or “tokenized” reward mechanisms.
The threat posed by this state-directed consumer nudging lies in the possibility of preparing broader public acceptance for a deeper state control mechanism of citizen behavior affecting other areas of behavior (e.g., to shape public opinion about government policies related to Corona measures, immigration, gender, taxation, etc.) and could even include a sanction mechanism similar to the Chinese-style “social credit system”.
The concern that the climate protection narrative and the reform of the financial system contain tendencies that threaten the Western model of personal and economic freedom is justified by several indications:
The planned introduction of the digital euro is not only considered by liberal think tanks like the Mises Institute[28] and the Hayek Society,[29] but also by national bodies such as the French National Commission for Informatics and Liberties, as a serious threat to personal liberty, data protection and privacy.[30]These concerns are fueled by the ECB’s open stance in favor of using its monetary policy to support climate action and the EU’s taxonomy for sustainable activities, which are instrumental in directing investment and lending activity in the European financial market towards specific technologies and processes.
In 2021, the Federal Ministry of Education and Research (BMBF) issued a research contract to examine the feasibility of introducing a “social credit system” in Germany by 2030 based on the communist model, in order to, among other things, influence the individual “CO2 footprint”. [31],[32]
A current study by several climate policy NGOs expressed considerable concerns about data protection when implementing the planned climate money.[33]
The European Commission is considering the introduction of a “Citizen Carbon ID” which, together with the digital euro, could be used to limit the activities and consumption behavior (e.g. meat consumption) of citizens.[34]
In February 2022, the Canadian government froze the bank accounts of anti-vaccination freedom protesters to quell public opposition.[35]
…
Climate money, as well as carbon contracts and ecotokens, are all prime examples of a spiral of intervention, part of a slippery slope towards statist neo-dirigisme.[36] If the goal of reducing CO2 emissions remains, this should be done in a way that is as market-based, technology-neutral and as global as possible, so that it is the most cost-efficient, e.g. B. with a global ETS or a climate fund. In China the reduction of 100 million tons of CO2 is almost 15 times cheaper than in Germany.[37]
Sources:
[1] Herold J. et al. (2022). Grüne Inflation? Zwischen Klimaschutz und Preisniveaustabilität. KfW Research. URL: https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-Fokus-Volkswirtschaft/Fokus-2022/Fokus-Nr.-368-Februar-2022-Gruene-Inflation.pdf
[2] Matthes F. et al. (2021). CO2-Bepreisung und die Reform der Steuern und Umlagen auf Strom: Die Umfinanzierung der Umlage des Erneuerbare-Energien-Gesetzes. Öko-Institut.
[3] ifo Institut (2021). Wie fair ist die Energiewende? Verteilungswirkungen in der deutschen Energie- und Klimapolitik. URL: https://www.ifo.de/publikationen/2021/aufsatz-zeitschrift/wie-fair-ist-die-energiewende-verteilungswirkungen-der
[4] Kemfert C. et al. (2021). Bayern klimaneutral und sozial – Maßnahmenvorschläge für eine soziale Klimatransformation in Bayern. DIW. URL: https://bayernspd-landtag.de/workspace/media/static/diwecon_bayern-klimaneutral-un-60dd9ee4d040f.pdf
[5] SPD, Grüne, FDP (2021). Ergebnis der Sondierungen zwischen SPD, BÜNDNIS 90/DIE GRÜNEN und FDP. URL: https://cms.gruene.de/uploads/documents/Ergebnis-der-Sondierungen.pdf
[6] Zimmermann J. (2022). Bündnis fordert Start von Klimaprämie. Tagesschau. URL: https://www.tagesschau.de/inland/klimageld-co2-preis-101.html
[7] Weyerer M. (2021). Bayerns SPD stellt ihren Plan für soziale Klimapolitik vor. Augsburger Allgemeine. URL: https://www.augsburger-allgemeine.de/bayern/Umwelt-Bayerns-SPD-stellt-ihren-Plan-fuer-soziale-Klimapolitik-vor-id60005671.html
[8] Kofner J. (2022). Ökonomische Auswirkungen der im Ampel-Koalitionsvertrag skizzierten CO2-Bepreisung. MIWI Institut. URL: https://kofner.de/archive/4148
[9] Martin P. et al. (2021). Helicopter money as a last resort contingent policy. French Council of Economic Analysis. URL: https://voxeu.org/article/helicopter-money-last-resort-contingent-policy
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[22] Kofner J. (2022).
[23] icap (2022). Allowance Price Explorer. URL: https://icapcarbonaction.com/en/ets-prices
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[25] Europex (2021). Carbon Contracts for Difference (CCfDs) and their potentially distortive effects on emission markets: call for a comprehensive impact assessment. URL: https://www.europex.org/position-papers/carbon-contracts-for-difference/#_ftn4
[26] StMUV (2019). Anlage zur MRat-Vorlage des StMUV „Klimaschutzoffensive – Maßnahmenpaket“. URL: https://www.stmuv.bayern.de/themen/klimaschutz/klimaschutzgesetz/doc/klimaschutzoffensive_lang.pdf
[27] StMFH (2022). Einzelplan 16 – Staatsministerium für Digitales. 2022. URL: https://www.stmfh.bayern.de/haushalt/2022e/haushaltsplan/Epl16.pdf
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[32] Hoover Institution (2020). China Expert Discusses The Communist State’s Surveillance And Social Credit System. URL: https://www.hoover.org/news/china-expert-discusses-communist-states-surveillance-and-social-credit-system
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[35] Peterson J.B. (2022). The Catastrophe of Canada. URL: https://www.youtube.com/watch?v=5efyUt5YDU0
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[37] Van Suntum U. (2021). Global climate fund for a more efficient CO2 reduction. MIWI Institute. URL: https://miwi-institut.de/archives/1325