The energy transition is one of the biggest transformation projects in the German economy.

Despite considerable progress – for example, regarding the expansion of renewable electricity generation – there is still a long way to go to achieve climate neutrality. Renewable energies account for only 22.4% of total final energy consumption. Fossil fuels continue to dominate, particularly in the areas of building heating, process heating and transport. The complete transformation is associated with very high costs, which are passed on to businesses and households. Competitiveness is suffering, and the first relocations of production abroad indicate the beginning of deindustrialisation.

Against this background, Frontier Economics was commissioned by the German Chamber of Industry and Commerce (DIHK) to determine the economic costs of continuing the current energy transition and to develop an alternative energy policy approach that would make the energy transition more cost-effective, innovation-friendly and in line with Germany's economic performance.

"Plan B": A new framework for the energy transition

At the heart of the proposed reorientation is a comprehensive cap-and-trade system that covers all greenhouse gas emissions across all sectors. The concept is based on a fixed emissions budget and is aligned with international peer groups (e.g. G20) in order to make climate protection globally effective and economically viable. The state takes on specific tasks where market failure exists – for example, in the coordination of network infrastructures, security of supply, risk hedging for new technologies and investment in research and education. Bureaucracy and detailed control are to be significantly reduced. The concept developed thus represents an alternative for a fundamental change of course in energy transition policy towards more innovation, growth and global climate protection. It does not represent a break with the existing system, but can be developed gradually from the current political framework.

Implementing the concept could result in significant cost savings 

Exemplary model calculations show that the new approach could save up to €910 billion until 2050 in the energy system alone – simply by opening up the solution space  to all low-emission technologies, a more efficient technology mix and time-optimised investments. Further savings can be achieved through international cooperation and the use of cost-effective climate protection measures abroad. Overall, this results in a cost reduction potential of over one trillion euros by 2050.

This paper was authored by David Bothe, Johanna Reichenbach, Stefan Lorenczik, Gregor Brändle, Felicitas Kuttler, Laura Coordt and Julius Stoll. 

The complete study is available here (in German)