German government advisors urge structural shift over support for energy-intensive industries

Germany should shift its industrial policy away from supporting long-established, large industry companies to instead focus on innovative high-growth sectors, a report by advisors to economy minister Katherina Reiche found. Technology areas with potential include future strategic sectors, such as artificial intelligence, genetic engineering, nuclear technology and medical research, the report said.

Currently, industrial policy is used to ensure that existing companies and industries remain competitive. The report authors warned against this approach, as energy costs would likely remain higher than in other countries. “Energy-intensive industries in Germany, for example, will suffer from significant cost disadvantages in the foreseeable future unless German and European energy and climate policy changes dramatically,” they said. They also found that higher energy costs were hampering the development of AI infrastructure in Germany due to its high energy demand.

The authors called for deregulation on the basis that this would spark more innovation. Specifically, they highlighted the EU taxonomy, the German Supply Chain Act, and the EU's planned Corporate Sustainability Due Diligence Directive (CSDDD) as targets for reduced regulation, reported Tagesspiegel Background. “As well-intentioned as all of this is, it has little additional effect on climate protection,” said Justus Haucap, economist and one of the co-authors.

Germany’s leading economic institutes published a joint economic forecast at the end of September in which they criticised the government’s strategy of subsiding energy costs for specific industrial groups in the context of reaching climate neutrality. In August, advisors to the economy ministry had called for Europe’s industrial policy to focus less on green subsidies and more on emissions trading.