Germany faces a twin challenge: to deliver the energy transition while safeguarding the competitiveness of its businesses.

Our new “Plan B” follow-up study for the German Chambers of Commerce and Industry (DIHK) shows that rising energy and transformation costs are no longer limited to energy-intensive sectors – they now pose significant risks to the wider German economy.

Energy costs for the industry have almost doubled between 2019 and 2024. Yet our main “Plan B” study for the DIHK found that, under current policy settings, the energy transition will continue to drive energy costs higher over the short and medium term.

Our new follow-up analysis shows that these increases threaten not only energy-intensive industries such as chemicals, steel and basic materials, but are increasingly affecting small and medium-sized firms across manufacturing, construction, retail and services. The reason: energy transition costs stem not only from higher energy prices but also from indirect effects – such as more expensive intermediate goods, transport, labour and administrative requirements.

The result could be a broad-based loss of value creation and employment across the economy.

Frontier’s proposed “Plan B” tackles the issue at its root – by lowering total system costs. It calls for a simpler, market-based framework built around a comprehensive, cross-sector emissions trading scheme with a “breathing” cap-and-trade mechanism and technology neutrality. This could reduce system costs by up to one trillion euros by 2045, while dampening price volatility – all without compromising climate goals.

Because structural cost reductions take time, temporary support may be needed to help firms manage the transition. However, fiscal space for such measures is limited, given the many existing pressures on business. Support should therefore be targeted, time-bound and free from unnecessary bureaucracy – to ensure both effectiveness and public acceptance.

Ultimately, only if energy, network and system costs are brought down on a lasting basis will the energy transition remain economically viable – and Germany remain a competitive industrial location.

Click here to read our New Paths for The Energy Transition ("Plan B") follow-up study on the risks facing business (DE)