Industry

The Energiewende doesn’t just affect the energy sector, it also has repercussions for industry in general.

The Energiewende doesn’t just affect the energy sector, it also has repercussions for industry in general. The transition to a low-carbon economy will be successful only if Germany’s industrial base remains strong while the share of renewable energies grows. So far, this has been the case. Renewables have now grown to more than 36 percent of the power mix, while German industry has remained competitive internationally. The goal is to maintain this position even when renewables make up 80 percent of the power mix.

Five factors are key: First, energy system costs must be kept as low as possible at any given rate of renewables expansion. This means minimising the cost of expanding renewables and also the cost of flexibility options for a system with a high volume of fluctuating power. Second, industrial power costs - especially among energy-intensive industries – cannot be so high that they threaten the competitiveness of German industry compared to countries with lower climate protection goals. Third, energy efficiency is key: Higher industrial energy efficiency reduces the burden of energy costs for German companies significantly, while increasing competitiveness. Fourth, through active load management, industry can be a source of flexibility, generating new sources of revenue in the market and benefitting when a surplus of wind and solar power push market prices lower. Finally, Germany as an export country can benefit from its pioneering role in the energy transition. The market for wind and solar power is booming. More and more countries are facing the same challenges in integrating renewable power into their electricity systems. Technologies and know-how developed in Germany through the Energiewende can now be exported worldwide.

In addition to emissions from energy generation, greenhouse gas emissions from production processes will also become increasingly important in the future. This is a consequence both of the German Climate Protection Plan 2050 and of the international emission targets, which demand greenhouse gas neutrality by the middle of the century. This also offers opportunities for German industry. After all, it is not just a matter of developing and applying the key technologies for greenhouse gas-neutral economic activity, but also of achieving success in the growing global market for climate protection technologies.

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Core results

  1. 1

    The basic materials industry is facing a major challenge: it must make a 25% reduction in emissions by 2030 and achieve near zero emissions by 2050 – but emission levels have remained constant over the last ten years.

    Breakthrough innovations are thus needed to enable the climate-neutral production of steel, chemicals and cement. Gradual efficiency improvements remain important, but they are no longer sufficient.

  2. 2

    The technologies needed for climate-neutral industry are already available – or are close to market readiness.

    Green hydrogen will play a central role in achieving carbon neutrality in the steel and chemical industries. Particularly in the chemicals industry, the closing of material loops will be a core strategy. In the cement industry, new binders and carbon capture and storage (CCS) will be key technologies.

  3. 3

    Industry needs a new regulatory framework over the short term, as a major reinvestment phase will occur between 2020 and 2030. Promising political instruments include Carbon Contracts for Difference (CfD), a green hydrogen quota, and a green public procurement commitment by the federal government.

    With the right mix of policy instruments, the German government can ensure reliable conditions for investment while also incentivising behaviour at various levels of the supply chain: upstream, midstream and downstream. By contrast, continued investment into conventional technologies risks stranded assets, as new industrial plants have lifespans well beyond 2050.

  4. 4

    The future of German industry must be climate-neutral. Germany now has the opportunity to become a technology leader in key low-carbon technologies with a significant potential upside.

    By ushering in climate-neutral industry at home, Germany could help to demonstrate the viability of a climate-neutral industry and thereby help to foster a global market for low-carbon technologies worth billions.

  1. 1

    Wholesale spot power prices are on the decline in many parts of Europe, and are lowest in Germany and Central Eastern Europe (especially in Poland and the Czech Republic). Meanwhile, prices have been rising in the US.

    Since 2011, spot prices have been decreasing in Europe, except for in the UK, Belgium and the Netherlands. While spot prices in Germany were higher than in the US during 2010-2012, in 2013 they fell below the New York ISO prices, and converged with those of other US regions. In many other European markets, the gap with US prices remains significant.

  2. 2

    Wholesale market prices can serve as a starting point for comparing the energy costs of European industries, especially energy-intensive industries. Nevertheless, this approach has inherent limitations:

    (1) Wholesale prices don’t necessarilyaccurately reflect the “energy component” of prices paid by end users, due to differences in purchasing strategies, longtermcontracts and potential price regulation; (2) Several additional components must be taken into account as well (gridtariffs, renewable levies and other taxes), from which industrial actors may receive partial or full exemptions.

  3. 3

    While numerous European companies have complained of market distortion due to regulatory favouritism for Germany’s energy-intensive industries,...

    ...caution must be exercised when attempting to directly compare industrial end-use pricesbetween countries and sectors. Against the backdrop of decreasing wholesale prices and increasing exemptionsfor energy-intensive consumers in Germany, several EU member states have argued that domestic regulations inGermany create market distortions that unduly favour German firms. Because firms in different regions and sectorsvary considerably in the extent to which they pay wholesale market prices and/or receive tax exemptions and levyreductions, comparing prices between sectors and countries is a difficult task. The heterogeneity of the situation is notfully and transparently captured by European statistics.

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