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PWC: Germany's climate policy good for economy

Global consultancy PWC has run financial models to determine whether low-carbon investments mandated by Germany's 2020 Climate Action Program generate a positive financial return. The answer: Yes, very much so.

It's long been a habit of grumpy anti-environmentalists and climate science doubters to assume that moving to a low-carbon economy would be bad, very bad, for the economy. There's a passionate commitment to the idea that regulations meant to reduce CO2 emissions by driving investments in energy efficiency measures or renewable energy systems are bound to be expensive, economically poisonous boondoggles. That certainly seems to be the assumption driving President-elect Trump's Cabinet picks.

But it turns out to be all wrong. In a fresh report, PWC presented the results of detailed spreadsheet calculations assessing the net financial impacts of public and private investments in energy efficiency and renewable energy mandated under the German government's "Aktionsprogramm Klimaschutz 2020," or 2020 Climate Protection Action Program, which covers the period 2015-2020.

Combined heat-and-power cogeneration plant, Iserlohn (Stadtwerke Iserlohn)

A combined heat-and-power cogeneration plant belonging to the municipal energy utility of the town of Iserlohn, Germany, produces both power and hot water for piping into nearby residential apartment buildings

The dozens of individual measures included in the 2020 program cover everything from energy-efficiency renovations of buildings, improved vehicle fuel-efficiency standards, more electric vehicles (pictured at top: Daimler's new Accumotive lithium-ion battery production facility near Kamenz), and increases in solar and wind power production, to changes in regulations governing a variety of industrial and agricultural processes. The estimated reduction in annual CO2 emissions expected from the program was in the range of 56 to 61 million tons of CO2 (equivalent) in greenhouse gases by the year 2020.

Healthy returns

In today's business climate, investors might wish they could find investment vehicles that generate returns on investment as healthy as those PWC has projected for the 2020 Climate Program: Taken together, 79 individual measures that the program mandates will, according to PWC's spreadsheets, drive investments totaling 125 billion euros ($132 billion) in cleantech infrastructure over five years from 2015. By 2020, those measures will generate 274 billion euros in savings, mostly by reducing spending on fossil energy.

The net result: 149 billion euros in savings, available to spend on other things.  

Rooftop solar PV panels on a renovated Berlin building (BSW-Solar/Upmann)

Increasingly, renovations of residential apartment buildings include features like these solar power panels on a rooftop in Berlin


Moreover, PWC's cost-benefit calculations show that Germany's 2020 program generates a remarkably high positive financial return for nearly every economic sector - including consumers, industry, and government. Only the energy sector itself has higher financial costs than benefits - but only slightly, at 10 billion euros over the 2020 Climate Action program's five-year time-frame.

PWC found that households (consumers) would benefit from the bulk of the energy savings, totaling 82 billion euros, and also would pay for the bulk of the 2020 program's costs, at 57 billion, leading to net savings of 25 billion euros

The state would do particularly well; spending on the 2020 program was expected to generate net benefits of 26 billion euros, mostly due to reductions in energy expenditures totaling 55 billion euros, offset by program spending. In addition, governments would see 73 billion euros of indirect financial benefit, via increased tax revenues and avoided transfers over the 2015-2020 time-frame.

Business sectors including industry, services, transport and agriculture would see net savings of 84 billion euros, with lower energy expenditures of 149 billion euros generated by mandated investments of 59 billion euros.

Renovations of historic houses in Wismar, Germany (picture-alliance/dpa/J. Büttner)

Wismar, Germany: Extensive renovations in the former GDR, where houses had become very dilapidated during the Communist era, have aimed mostly at aesthetics and functionality, but also at improving energy efficiency

Germany could and must do even better

These strong positive financial returns on climate safety investments are expected even though the several dozen individual actions mandated by the 2020 climate program were not optimized for producing economic benefits - nor, for that matter, environmental benefits. The 2020 program was the product of a great many political compromises.

Nor did PWC's calculations attribute any financial value to the harm avoided by lower pollution levels - for example, fewer premature deaths due to avoided air pollution from reduced fossil fuel combustion.

As noted above, the energy sector was the only sector that would see net costs, totaling about 10 billion euros. A key factor in this was expected to result from the 2020 program's requiring power generators to burn less lignite (which is cheap) and relatively more natural gas (which is less CO2-intensive, but more expensive per MWh of electricity generated)

Much more needs to be done to reduce CO2 emissions, if the goals of the climate safety agreement reached in Paris in December 2015 are to be achieved in reality, according to teams of experts such as those at the United Nations Environment Programme (UNEP), the Potsdam Institute for Climate Impacts Research, and many other expert groups.

But the good news is: If PWC's direct financial costs-and-benefits spreadsheet assessment of Germany's 2015-2020 Climate Action Program is any indication, virtually the whole of society will benefit from a transition to a low-carbon economy - not just in environmental, health and safety terms, but also in straight financial terms. It's time to bury the stubborn myth that a low-carbon economy would be "too expensive."


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