European CO2 price should be central to German climate policy – economists

Germany should think of its climate policy plans on a European and ultimately global level, economists Gabriel Felbermayr (Wifo), Clemens Fuest (Ifo Institute) and Jens Suedekum (University of Duesseldorf) write in an article for the Ifo. A Europe-wide CO2 price should act as a central instrument to reduce emissions and the emissions trading system (ETS) should include all sectors, they write in a paper titled “a masterplan for climate policy”. "It creates the best incentives for behavioral adjustments among private households as well as for climate-friendly business practices among companies. CO2 prices are the central instrument of climate policy," they write. "We should not get bogged down in the small, national details and only talk about speed limits or sectoral targets. Effective climate policy requires global thinking." 

To ensure social equity, revenues from the carbon price must be returned to households and businesses, either in the form of a direct climate premium or through the reduction of electricity prices, they write. “Otherwise, the high energy prices threaten to divide society.” In addition, green subsidies on an EU level are needed. “We need to enable European industry to implement green investments even in this difficult market environment. This is the only way Europe can simultaneously meet climate targets, become or remain the world leader in green technology, and thus maintain jobs and prosperity levels."

The EU is currently negotiating an overhaul of its main climate and energy policy legislation with the so-called "Fit for 55 package" of proposals. Among the proposals is the introduction of a new emissions trading system for the transport and building sectors, in parallel to the existing EU ETS for energy and industry emissions.