06 Apr 2023, 12:09
Julian Wettengel

"Counterproductive" industry subsidies stifle clean tech innovation - economic institutes

Handelsblatt / Clean Energy Wire

Four leading German economic institutes have warned against industry subsidies like cushioning high power prices or efforts to re-establish certain clean tech sectors back to Europe. At the presentation of the joint economic forecast, vice president of the Halle Institute for Economic Research Oliver Holtemöller called such subsidies “highly counterproductive”, business daily Handelsblatt reports. A lack of correct price signals could make efforts towards greater innovation less attractive, said the economists. However, innovation was necessary for climate action. Companies which convinced the state to give them support might be more successful in the short term, said the joint forecast, “but in the long run there is a risk that they will be less innovative and thus hinder productivity progress.” However, from a security policy perspective it could “make sense to keep critical economic sectors in Germany or the EU to a certain extent through subsidies,” said the institutes.

Germany’s government is pondering short-term industry power price subsidies, until a more market-based system can be implemented, Handelsblatt reported. At the same time, the European Union has presented plans to boost net-zero industries in the bloc in an effort to keep up with other regions of the world, such as the U.S. and China.

The institutes forecast that Germany is set to avoid a recession in 2023 with economic growth of 0.3 percent. Earlier this year, the government’s economic forecast already said the economy is set to grow 0.2 percent in 2023, following relatively mild winter temperatures that have dispelled fears of a gas shortage. In October 2022, the government still forecast a 0.4 percent contraction. “The government has blown the whistle on the economic crisis,” chancellor Olaf Scholz told parliament in January, adding that the "winter of discontent" expected by many had not materialised because his government managed to secure energy supplies.

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