“We must invest more in research and development”

Economist, strategy consultant, and author Dr. Daniel Stelter

Dr. Daniel Stelter, Europe aims to be the first climate-neutral continent and, at the same time, maintain its existing levels of prosperity. What is your view as an economist? Can these two goals be combined? 

Many economists would say: “Of course we can do that! The energy transition offers huge opportunities and new technologies will be accompanied by new jobs.” Unfortunately, the empirical evidence suggests otherwise. The wind power is not coming from Germany, but primarily from China. The same is true of solar energy. We have subsidized it to the tune of 82 billion euros, but the industry is now based in Asia. What I’m trying to say is that in theory you can generate prosperity with green technologies. But the way we are going about it will not work. 

What should we be doing instead?  

We should be investing considerably more money in research and development. And the investments should be open-ended and not restricted by political requirements. For example, we need a CO2-neutral energy source that is available globally in large quantities. Wind and solar power alone are not enough. The EU could invest hundreds of billions of euros every year in research into the next generation of risk-free nuclear power plants. They produce no waste themselves and could make use of the nuclear waste we already have. This could lead to real economic growth. But instead we are focusing on bans and phase-outs, despite the fact that humankind has always made progress by means of innovation. The sad thing about the current situation is that the only way we can continue with our very costly climate action is against the background of a strong European and Germany economy. Otherwise, there will be distributional conflicts and the climate protection measures will lose out. But what we are doing at the moment is not sustainable. 

What particular problems do you have with the current policy? 

Economists like two things: efficiency and effectiveness. The measures must achieve something and, at the same time, be efficient. This means that for every euro we spend, we must save as much CO2 as possible. But in reality the situation is often completely different. For example, the Economist magazine calculated the amount that the senate in Berlin has spent on subsidizing cargo bikes. Each metric ton of CO2 that is saved is costing more than 50,000 euros per year. Then there is the highly praised nine-euro monthly ticket for public transport. In this case, the cost of each metric ton of CO2 saved is around 1600 euros per year. Of course we can do all these things, but there are many other measures that cost only a few hundred euros per year for each metric ton of CO2 saved. 

Would it make more sense to pay for measures to be taken in places where each metric ton saved costs much less? 

Yes, because in Germany we have made much more progress with energy efficiency than other countries. We use very little energy in relation to our gross domestic product. Conversely, this means that all the other measures we can take to avoid producing CO2 are disproportionately expensive. Therefore, in Germany we should be focusing more on the measures that actually achieve something and less on those that look good on TV. As a result, we may also be able to help on a global level to a certain extent. According to the Paris Climate Agreement and the Glasgow Climate Pact, we can offset measures of this kind that we take abroad against our own climate targets. But our government has made the unilateral decision not to make use of this option, which commits us to expensive measures at home that are being taken in an extremely inefficient and ineffective way. As a result, we will be overburdened in the future. 

Alongside the climate, the energy crisis and a possible recession are dominating the headlines. How well is the German economy doing at the moment? 

When I talk to businesspeople, they often say: “We do not have the information we need to be able to decide whether Germany will be a good place to do business in the long term. We are competing with companies from the USA, some of which have energy costs that are one tenth of ours. And the government is not prepared to make any significant changes in this area.” Therefore, I believe that we are at serious risk of seeing deindustrialization continue, which would cause us major problems. The industrial sector is very important for Germany because a large number of service businesses have grown up around it. And in the chemical and automotive industries, for example, wages are very high. 

Is this a completely new trend? 

No. The trend for deindustrialization began before the COVID-19 pandemic. The causes included companies relocating because of globalization, the growing shortage of skilled workers, and the cost of energy, which was rising even then. The shock of the pandemic weakened businesses even further and this was followed by supply chain disruption, inflation, and finally the ultimate energy cost shock as a result of the war in Ukraine. All of this has led to a rapid acceleration of the trends that had already put Germany at a disadvantage. Of course, the economy will respond, but in many cases businesses will choose to invest elsewhere. This will have massive consequences for the funding of the welfare state and climate measures, for instance. 

You travel all over the world. Are there regions or countries that in your view are taking a more intelligent approach to climate action than we are? 

First of all, I think all the countries that have opted for a combination of nuclear power and other forms of energy generation are more intelligent. Sweden uses hydropower and nuclear energy and I believe that this mix of nuclear power and renewable energies is the right approach. In the USA they are also introducing some good measures. For example, there are subsidies for some production processes that capture CO2. By contrast, we are focusing on ensuring that the CO2 is not produced in the first place. But producing carbon dioxide makes sense if it can be used. It is also important for us to identify the right incentive systems and not to ignore measures such as carbon capture and storage right from the beginning for ideological reasons. 

Are there any particularly effective incentive systems? 

The best incentive system would be a global price for CO2. Then the climate minister would have nothing more to do other than make sure that the CO2 price rises according to plan. As a consequence, he could focus on his second role as minister for the economy and help German companies to weather the acute energy price crisis.