German efforts to protect business should focus on saving energy, slower coal exit - economist

Economist and government advisor Andreas Loechel has said the German government’s plan to provide guarantees and sureties for companies hit by high energy prices offers the wrong incentives and instead calls for more energy to be saved. At the same time, the country’s coal exit should be slowed down, he added in an interview with business magazine Capital. Loeschel, chairman of the Energy of the Future expert commission and a lead author for the Intergovernmental Panel on Climate Change (IPCC), said the aim of the government’s efforts to ease the energy price hike impact on businesses should not be “that demand remains high through subsidies” but that energy is saved. “The market mechanisms and thus the steering effect of high prices are important, even if they are painful. We now have seven months ahead of us in which there will be sufficient gas. We should use the time to make adjustments on the demand side.” Businesses and consumers must both be helped, just differently, he added. Loechel noted that the first political impulse is to lower prices, but stressed that “much more energy must be saved from now on.”

One solution could be import duties on Russian gas, which would lessen revenues for Russia while increasing Germany’s tax revenue and possibly lead to more stable prices. It could also set the necessary investment incentives for companies, particularly in saving energy. Stressing that about a fifth of Germany’s gas supply goes to power generation, Loechel recommended slowing down the country’s planned coal exit. This year, 4 gigawatts (GW) of nuclear and 5 GW of coal-fired power are set to be shut down.

German utilities last month said that they were making provisions for a runtime extension of decommissioned coal-fired power plants in case of possible energy supply disruptions due to the war in Ukraine.