Reaching net zero while safeguarding competitiveness and social cohesion in Germany
Germany intends to reach climate neutrality in 2045, tripling the speed of emission
reductions that was achieved between 1990 and 2019. Soaring energy prices and the
need to replace Russian energy imports have amplified the urgency to act. Various
policy adjustments are needed to ensure implementation and achieve the transition
to net zero cost-effectively. Lengthy planning and approval procedures risk slowing
the expansion of renewables, while fossil fuel subsidies and generous tax exemptions
limit the effectiveness of environmental policies. Germany should continue to rely
on carbon pricing as a keystone of its mitigation strategy and aim to harmonise prices
across sectors and make them more predictable. Carbon prices will be more effective
if complemented by well-designed sectoral regulations and subsidies, especially for
boosting green R&D, expanding sustainable transport and electricity network infrastructure,
and decarbonising the housing sector. Subsidies for mature technologies and specific
industries should be gradually phased out. Using carbon tax revenue to compensate
low-income households and improve the quality of active labour market policies would
help to support growth and ensure that the transition does not weaken social cohesion.
Published on July 17, 2023
In series:OECD Economics Department Working Papersview more titles