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Reducing Greenhouse Gases Will Cost Germany €1.4 Trillion

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The legacy of the past weighs heavy on the future. Picture source: Reuters

Germans have long agreed on the laudatory goal of reducing greenhouse gas emissions, but until now the exact cost for this massive environmental cleanup was never really spelled out. A new study released Thursday puts the total tab at a staggering €1.4 trillion ($1.66 trillion) to meet the goal of cutting emissions by 80-95 percent by 2050.

The estimate, produced by the Boston Consulting Group and the Prognos Institute for the German Federation of Industry, says implementing the plan will hit households for €400 billion. Several key sectors of the economy will also pay a heavy price.  The transport sector alone will have to invest €450 billion to reduce pollution with things like electric vehicles, while the energy sector will have to spend €370 billion to upgrade power plants and German industry will have to foot a €160 billion bill.

Among the costs: building a nationwide system of charging stations for electric cars and adding insulation to private homes to reduce heating costs. Several major companies supported the study, including chemicals maker BASF, oil giant BP, industrial conglomerate ThyssenKrupp and the utility RWE.

“We want to inject reality and awareness of the cost into the political debate”

A source, who worked on the report

The €1.4 trillion bill is likely to prove politically explosive – it is half a year’s entire GDP for Germany –  but the report makes clear that this figure is actually at the low end of estimates. For example, while it would be cheaper to reach an 80 percent greenhouse gas reduction compared with 1990 levels, which would meet the legal minimum requirements, the report looks at what a 95-percent reduction would really cost.

The estimates do not include investments already made in upgrading the economy, such as building renewable energy power stations. Those investments have costs hundreds of billions of euros.

“It doesn’t take much imagination to realize the you can easily get over the €2-trillion level,” said one of the experts who helped prepare the study. He added that as you get close to the maximum the last few percentage points of reduction are the most expensive because it is testing the boundaries of what current technology is capable of.

The paper tried to identify winners and losers in the economy from the massive investment program. Among the winners: construction firms and factories that make plant machinery, which are being utilized to upgrade buildings and equipment.

“This comprehensive modernization of all the different economic sectors increases the potential to expand Germany as a leading market for innovative green technologies,” the report said.

Among the losers cited in the report: oil companies and energy dependent industries such as steel that are subject to international competition. For example, China doesn’t put emissions limits on steel factories so its steel prices are dramatically lower than in the West.

 

Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. Charles Wallace in New York City adapted this story to English for Handelsblatt Global. To contact the author: stratmann@handelsblatt.com

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