The current situation: worrying

In recent years, the debate on climate change has evolved from a question of scientific knowledge to a central political issue. Nevertheless, we are still a long way from the emissions reduction pathway agreed under international law. We do not have a knowledge problem, we have a massive implementation problem, because one climate target after another is being missed. However, despite the growing awareness of the urgency of reducing emissions, it is becoming increasingly apparent that the methods chosen are not capable of achieving the target quickly and effectively enough. There is a great lack of honesty that no one has a plan to get us out of the dilemma. This includes an honest recognition of the limited effectiveness of traditional instruments. The European Emissions Trading System (EU ETS) and the national CO2 tax are at the center of the discussion. European emissions trading has been in place since 2005 and was supplemented by sectoral CO₂ pricing in Germany in 2021.

 

Nevertheless, the IPCC confirms in its sixth reporting cycle (2015-2023) that

 

"The global surface temperature will continue to rise

under all emission scenarios will continue to rise until at least

the middle of the century. 

Global warming of 1.5 °C and 2 °C will be exceeded

in the course of the 21st century unless there are drastic reductions

in CO₂ and other greenhouse gas emissions in the coming decades."

 

The Expert Council for Climate Issues (Germany) also commented on the Federal Government's draft Climate Protection Program 2023: 

 

"The Climate Protection Act specifies as a requirement for a

climate protection program the adoption of measures that

lead to the achievement of national climate protection targets.

It follows from the identified target achievement gap

that the Climate Action Program 2023 does not

meets the requirements for a climate protection program

in accordance with the Climate Protection Act."

 

These assessments are not the only evidence that the current climate policy measures are not effective enough to achieve the targets set.

 

Why is this the case?

As one of the central tools for reducing greenhouse gases, the EU ETS works according to the principle of "cap-and-trade", whereby certain companies have to buy allowances at auction. Companies that reduce their emissions can sell their surplus allowances, while companies that exceed their emission limits must purchase additional allowances. Although the EU ETS undoubtedly helps to reduce greenhouse gases, in practice it is often characterized by a (historical) over-allocation of allowances, which leads to a low price for CO₂ and thus reduces the incentive to reduce emissions. It is often cheaper to buy additional certificates instead of investing in the defossilization of production. Furthermore, by no means all companies are part of this trading system. Only around 12,000 companies (with a heating capacity >20MW) are covered, which covers around 45% of greenhouse gas emissions in the economic area. Even today, companies in some energy-intensive sectors are still allocated a limited number of emission allowances free of charge. This prevents fair competition and protects polluters.

 

In addition to emissions certificate trading, many countries are introducing a national CO₂ tax as a further instrument for reducing GHG emissions. This tax aims to make the consumption of fossil fuels more expensive and thus incentivize savings or greater use of renewable energies. It is controversial because, among other things, it does not include an upper limit (cap), works via price increases and is therefore socially unjust, as lower-income households in particular are disproportionately affected.

 

Despite political efforts to curb climate change with the help of the EU ETS and the CO₂ tax, there is still a huge gap between reality and what is needed to achieve the climate targets. The Paris Agreement of 2015 commits the signatory states to limiting global warming to well below 2 degrees Celsius - ideally to 1.5 degrees Celsius. However, more drastic measures are needed at a global level to achieve this ambitious goal.

Current policy approaches may be steps in the right direction, but they are far from sufficient to bring about the urgently needed changes in a timely manner. Despite their existence, both the EU ETS and the carbon tax have shown significant weaknesses, not least because they reinforce social injustices by burdening certain groups more than others. 

 

Instead of continuing to ride a dead horse by clinging to outdated methods, we need to create a new model that makes the existing structures redundant. This requires a holistic approach that goes beyond short-term political considerations and prioritizes long-term, sustainable solutions.

 

If the current instruments were to be tightened up effectively enough, this would have an impact on the economic competitiveness of our industry - also in an international context. 

 

Another problem: even if most people are in favor of more climate protection in principle, public support would dwindle significantly as soon as climate policy measures affect people's personal comfort zone or their wallets even more. This is one of the reasons why the actual emission reduction rates continue to fall short of the scientific recommendations. In addition to the Intergovernmental Panel on Climate Change (IPCC), for the global level, and the Expert Council on Climate Change, for Germany, other expert bodies, such as the Potsdam Institute for Climate Impact Research (PIK), have also confirmed that the efforts made to date are far from sufficient and that we are by no means on course to achieve the emissions reduction target that has been set and for which there is no alternative. 

 

Our government's bold announcement that Germany's emissions will have fallen significantly by 2023 is also less evidence of successful climate protection than "luck" in the form of a currently weak economy and a mild winter.

 

New and innovative approaches are therefore urgently needed to effectively tackle the challenges of climate change. Unfortunately, the courage to admit this publicly has so far been lacking. Instead of acknowledging that the existing system is not working effectively enough, people prefer to continue trying to somehow "make it worse". Not working in a matter that is existential for the survival and cohesion of our society.

 

"You don't change things by fighting the existing reality.

To change something, you have to create a new model

that makes the existing model obsolete."

                                                                                                                     Buckminster Fuller

 

 

The core of the problem - the attempt to reflect climate policy via price increases and within the existing monetary system, among other things

Although the volume of certificates issued under the EU ETS is limited, this measure basically also works by making fossil fuel consumption more expensive, just like the CO2 tax, which is based on a gradual increase in the price of CO₂. The aim is to make climate-damaging consumption less attractive. High prices for fuel or gas, for example, are intended to reduce consumption and at the same time make sustainable alternatives more attractive. Economists call this a steering effect. But is the steering effect really sufficient? The CO₂ price, at least, is failing to achieve its goal. Car traffic has increased in the last three years and more oil and gas heating systems have been installed than ever before - despite the CO₂ tax and high market prices for fossil fuels. The reason for the lack of a steering effect is simple: as companies pass on the additional costs for the certificates purchased at auction or the CO₂ tax to end consumers, there is insufficient transformation pressure or intrinsic motivation to defossilize. 

 

The result: not enough climate-friendly consumption and mobility alternatives are being developed quickly enough for consumers. Citizens may be reluctant to pay the surcharges, but they pay them - out of necessity. A CO₂ price is therefore hardly a distraction - even if it were twice as high. After all, anyone who doesn't live in the centers of major cities is dependent on their car - and not just people in rural areas. Without private transport, many people would otherwise not be able to make ends meet. If fuel becomes more expensive, people don't leave their cars at home or fill up with much less gas, but save elsewhere. If gas becomes more expensive, tenants have to accept the higher prices and save elsewhere. Replacing the gas heating with a heat pump, for example, is ultimately a matter for the landlord. However, they pass on the higher costs to the end consumer in the same way as the filling stations. Steering effect? No way! There can only be one if alternatives are good. Affordable electric cars, well-developed and inexpensive bus and rail transport, affordable heat pumps, etc. But we are a long way from that.

 

 

In the current system, everything is subordinated to the short-sighted pursuit of short-term profitability

Moreover, a truly effective surcharge would not be politically feasible at all. Politicians cannot allow energy or emissions prices to rise too sharply within their own economic area. On the one hand to prevent emissions-intensive industries from moving abroad with less stringent environmental regulations (carbon leakage), and on the other hand to avoid jeopardizing the international competitiveness of our own economy. This is because the current economic policy of raising prices makes it more difficult to compete with other countries, because it means we have higher energy prices and production costs in Germany and because we pay a CO₂ tax that does not exist in some other countries - an unsolvable vicious circle in the current system.

 

Because as soon as price increases or increasingly scarce emission certificates thwart our economy or growth, or jeopardize (international) competitiveness, or otherwise threaten our current financial prosperity or our personal comfort zone in any way - then climate protection will ALWAYS take a back seat. In the current system, everything is subordinated to the short-sighted pursuit of short-term profitability.

 

Every effort is made to avoid protests from the population or excessive criticism from the opposition, as the debacle surrounding the Building Energy Act (GEG) or the planned reduction in agricultural diesel subsidies have impressively demonstrated. As a result, climate protection laws that were previously passed are often withdrawn or watered down to the point of insignificance.

 

There are many examples of how politicians repeatedly work against their own climate protection instruments. The self-proclaimed approach of reducing emissions by making them more expensive, among other things, is often thwarted by a wide variety of compensation measures, as a result of which the self-imposed climate target is becoming increasingly unattainable:

 

Counteracting compensation measures:

# Industrial electricity price:

Energy-intensive companies that compete internationally can, under certain conditions, benefit from partial or full exemptions from electricity and energy tax by receiving a reduced price subsidized by taxpayers' money. These measures are aimed at maintaining the competitiveness of such industries in Germany, particularly in view of the often higher energy prices compared to other countries. They can be seen as an indirect form of subsidization, as they help to reduce the cost of electricity for certain industries and thus strengthen their competitiveness.

 

# Electricity price compensation:

Energy-intensive companies also receive so-called electricity price compensation, as they incur indirect CO₂ costs in addition to direct CO₂ costs through the purchase of certificates in the EU Emissions Trading System, and these indirect costs are passed on to end consumers via the electricity price. In order to reduce these increased electricity costs due to emissions trading, such companies receive financial compensation, also to ensure international competitiveness.

This is also intended to avoid the problem of the impending relocation of electricity-intensive production to countries where CO₂ prices are lower and electricity is therefore cheaper. 

 

# Abolition of the EEG levy:

The Energy Financing Act, which came into force on January 1, 2023, completely abolished the EEG levy. Since then, the financing requirements for renewable energies have been offset by the federal government (Climate and Transformation Fund).

 

# Energy price brake

The so-called energy price brake capped energy costs so that consumers only had to pay a certain price set by the federal government for part of the energy they consumed. The difference between the market price and the capped price for electricity, gas and heating was covered by the federal government.

 

# Fuel discount

From June 1 to August 31, 2022, there was a temporary reduction in the energy tax on fuels in Germany. The energy tax reduction was implemented to provide financial relief for citizens and the economy, as fuel prices had risen considerably due to the sanctions imposed by the EU against Russia in response to the Russian invasion of Ukraine in 2022.

 

# Climate money 

In order to calm the increasingly angry population due to the rising CO₂ price, the traffic light coalition has even included the so-called "climate money" in the coalition agreement. The idea: every citizen should receive a few hundred euros a year from the state to "make up" for the higher costs caused by the CO₂ price. The revenue from the CO₂ tax is to be refunded to citizens according to the watering can principle. 

The flaw: it's a "left pocket - right pocket" game. Because the simplified equation applies: money = consumption = emissions. Money saved by cutting back or doing without (or more efficient technologies) in one place is usually spent again elsewhere (rebound effect). 

This is another reason why it is essential to decouple effective climate protection and our consumption-related emissions from the monetary system - for example through a complementary climate currency!

All the compensation measures mentioned are perfectly understandable political decisions with noble aims. However, they are also an admission of the fact that it is difficult, if not impossible, to achieve effective, timely and social climate policy by raising prices.

 

But that's not all - more misguided climate policy:

# Abolition of sector targets:

A cross-sectoral approach means that if one sector fails to meet its targets, another can help out. In future, missed targets in one sector can be offset against other sectors, and compliance with sector targets can no longer be claimed. The obligation for affected ministries to present immediate programs for more climate protection in the event of missed targets has also been abolished - not much more than a helpless sleight of hand.

 

The Climate Protection Act has been robbed of its centerpiece by the de facto abolition of sector targets. The coalition government of all parties, which had pledged to make progress on climate protection, is falling behind the modernization snail's pace of the grand coalition: without need, it has watered down the Climate Protection Act, which was only passed in 2019. It had been introduced as a pacemaker for action to ensure that Germany would reach its target. However, experience had shown that the individual sectors preferred to point to each other's poor performance rather than taking action themselves. In order to end this standstill, specific savings targets were introduced by law. Unfortunately, this has now come to an end! Volker Wissing can breathe a sigh of relief and sit back and relax.

 

# Climate and Transformation Fund has shrunk considerably:

On November 15, 2023, the Federal Constitutional Court ruled that the postponement of the credit authorizations of 60 billion euros originally planned for the corona policy to the Climate and Transformation Fund (KTF) was unconstitutional. The court thus granted the application for a review of the norm filed by 197 members of the CDU/CSU parliamentary group in the Bundestag.

The decision was based on the fact that the legislator had not sufficiently explained the "causal link" between the emergency situation and countermeasures. The violation of the debt brake and non-compliance with budgetary principles were also objected to.

As a result of the decision, the scope of the KTF was reduced by 60 billion euros - the credit authorizations lapsed.

 

# Building Energy Act:

The next absurd act: the Building Energy Act. The "Heating Act" is only a shadow of its former self and will allow fossil fuel heating for many years to come. After mass protests from the population and never-ending criticism from the opposition, it was watered down to the point of meaninglessness and has been largely ineffective ever since. 

The "compromise" stipulates that the requirement only applies to "new buildings in new development areas". The regulation is as absurd as the wording. New fossil gas heating systems will continue to be installed in "new buildings outside new development areas" and in existing buildings.

The energy transition is failing! Despite the GEG, the CO₂ price and high market prices for energy, more new gas heating systems were sold in Germany last year than ever before. Even oil heating systems boomed.

 

# tbc.

 

These are all repeating patterns. Governments "try" to implement scientific recommendations to reduce emissions by slowly making the consumption of emission-intensive products more expensive. At the same time, however, they often sabotage their own efforts by introducing compensation measures or weakening measures that have already been adopted.

 

More examples of failed climate policy:

# Certificates are still being issued free of charge

A negative "classic" of emissions certificate trading is the fact that certificates are still being issued free of charge despite the sufficient mode of operation and years of over-allocation. Of course, this approach also serves a perfectly noble and understandable goal - namely to cope with international competitive pressure and to protect our own industry.

 

Nevertheless, it is also an admission of the increasingly obvious fact that the attempt to guarantee the scientifically required and internationally agreed emissions reduction curve via the EU ETS tool has failed resoundingly.

 

# Tens of billions in subsidies for the fossil fuel economy 

It becomes quite bizarre when you consider that, on the one hand, a two-digit billion amount (65 billion, according to the Federal Environment Agency) in subsidies flows into the fossil fuel economy in Germany alone, but on the other hand CO₂ emissions are gradually becoming more expensive.

 

# Carbon Boarder Adjustment Mechanism

The introduction of a border adjustment mechanism (CBAM for Carbon Border Adjustment Mechanism) refers to a proposal by the European Union to ensure the competitiveness of its own industry and to record CO2 emissions from imports. The aim is to ensure that products manufactured in countries with less stringent environmental standards than the EU are not given a competitive advantage over European products. This is because cheap but often GHG-intensive imports counteract climate protection efforts within the EU. For this reason, Brussels intends to introduce a CO₂ tariff (initially on certain goods). However, this instrument also has a decisive disadvantage - there is no cap. As the CO₂ tariff "only" means an increase in the price of these imports, there is basically no cap. This is a similar design flaw to the current national CO₂ tax.

 

Solution: Shift emissions trading to the personal level by means of a complementary resource currency and strictly adapt all imports to such a climate currency system with contingent personal budgets. In this way, citizens within such a resource currency union would not be able to consume climate-damaging goods in excess of the agreed total emissions budget.   

 

# Active removal of CO₂ from the atmosphere

A currently frequently discussed "lifeline" to somehow manage the physical emissions framework set by nature is the active removal of CO₂ from the atmosphere - also known as "carbon dioxide removal" (CDR). According to scientific assessments, this process is now essential to limit global warming to a habitable level. Not a bad idea in itself, if we manage to have enough green energy "left over" to run this energy-intensive process. Otherwise it would not only be pointless, but even counterproductive. 

 

Another unresolved problem is how to make this process attractive to financially strong companies. However, if these measures are remunerated in euros, this counteracts their actual purpose. Similar to the example of "climate money", it would be nothing more than a "left pocket - right pocket" scenario. This is because consumption-based GHG emissions would increase because the additional purchasing power generated by capital from "mined" euros would also be used for additional climate-damaging consumption. For the CO₂ content in the atmosphere, this would be nothing more than a zero-sum game.

 

# Mandatory GHG accounting for companies

The new EU Corporate Sustainability Reporting Directive (CSRD), which obliges companies to disclose their climate-relevant emissions, is expected to come into force from the 2024 financial year. This affects not only capital market-oriented companies, but also German SMEs. In Germany alone, the user group will expand from around 500 to almost 15,000 companies. In addition to the direct emissions from the plants and processes of the companies, the indirect emissions from energy procurement and the main emissions from the upstream and downstream value chain must also be reported.

 

Greenhouse gases are generally accounted for in two different ways:

• Corporate footprint (Corporate Carbon Footprint, CCF): This approach helps companies to identify the greatest potential for reducing greenhouse gas emissions throughout the entire corporate chain. It serves as proof of how climate-friendly a company produces and operates. 
• Product footprint (Product Carbon Footprint, PCF): This approach can be used to identify optimization potential for individual products and initiate product-specific improvement measures. It serves as proof of the impact a particular product has on the climate. 

 

The emissions are divided into three scopes:

• Scope 1: Covers all of the company's direct emissions from its own and controlled sources (e.g. operation of its own vehicle fleet).
• Scope 2: These are indirect emissions, but they must be clearly attributable to the company. Emissions that arise during the generation of the energy purchased and consumed by the company (e.g. electricity, steam, heat and cooling).
• Scope 3: includes all other indirect sources of emissions resulting from upstream and downstream business activities along the entire value chain of the company.

 

The biggest challenge in accounting is data availability and quality. The emission values in Scope 3 in particular are difficult to record as they are generated by third parties over which the reporting company has little or no control. These include, for example, employees' commutes to work or the extraction of raw materials. This means enormous additional financial and personnel costs for the business, and many companies do not yet know how they can manage this in the required level of detail.

 

An approach that was certainly well intentioned, but well intentioned is by no means well done.

 

The desire for economic profit beats economic common sense

Achieving the climate target agreed under international law is becoming increasingly unlikely. The problem is that economics beats ecology, and profit interests beat climate protection - always! 

Because:

• Restrictions or increases in consumer prices for citizens only meet with very limited social approval. 
• Tax increases for industry increase competitive pressure - especially in an international context. Additional funds to cushion the necessary transformations are hard to come by - keyword: debt brake. 
• Tax increases are unlikely to gain a majority in parliament.
• A CO₂ price that would be even remotely effective is unrealistic and politically impossible to implement.

 

At the moment, the economy and the environment are treated as separate systems, which is a big problem. This is because they compete with each other and the economy always wins in the end. This is an inherent problem of our current economic system, which is fixated on the pursuit of profit and the overuse of natural resources.

 

 

The climate crisis cannot be solved within the existing system

Many of the aforementioned weaknesses of current climate policy result from the fact that attempts are constantly being made to solve the problem within the existing monetary system. In principle, however, money is available without limits and is therefore unsuitable for representing a limited resource such as our atmosphere.

The fact that the perfectly understandable desire to "simply" solve the energy transition within the existing monetary system has failed is also impressively demonstrated by the barely visible savings resulting from the explosion in energy prices triggered by the war in Ukraine. The savings in heating and refueling were only in the single-digit percentage range. However, in order to meet the climate target, we need to reduce GHG emissions by around 80% - across ALL areas of life. It is obvious that the idea of using price signals to achieve the necessary savings has been a resounding failure.

 

How could that possibly work? The potential to cut back ends at the latest when we start freezing or the commute to work on the poorly developed public transport system becomes unreasonable. And as the industry shies away from investing in the transformation of its manufacturing processes, we consumers do not have any realistic climate-friendly consumption alternatives at our disposal.

 

Moreover, our conventional money alone is hardly suitable for transparently mapping the impact of our consumption on ecosystems. This is because there are many products in our modern consumer society that are economically very cheap to produce and are therefore also sold cheaply, but whose production or operation is associated with high ecological costs for the environment. The CO₂ surcharge included in the product price also prevents desirable transparency, as the surcharge, in combination with the economic price, is almost completely lost in the overall price. Proactive purchasing decisions for the more climate-friendly product? Not a chance!

We will not be able to achieve the necessary reduction in emissions to meet the climate target either through certificate trading or by increasing prices. We need an alternative model that is capable of reconciling national interests with global necessities. Because drastically reducing emissions in order to comply with planetary boundaries is not optional, but mandatory! 

 

That is why we must decouple climate protection from the monetary system. Because money = consumption = emissions.

 

In addition, the climate policy measures currently chosen are increasingly losing acceptance among the population. Climate protection is increasingly becoming a losing issue because citizens only perceive it as a burden on their own wallets. It divides society, as price increases lead to an increasingly unequal burden, as lower-income households are disproportionately affected. While most people are generally in favor of more climate protection, such measures are rightly perceived as unfair. 

 

Climate protection will only be widely accepted if it becomes a winning issue. When it tangibly strengthens people's self-efficacy, when affordable consumption and mobility alternatives emerge and improve people's everyday lives. When rail and bus travel becomes comfortable and electric cars and heat pumps are affordable. When climate investments create new jobs and finger-pointing due to different life realities stops.

 

The systemic problem of climate policy can only be solved by changing the system

Sticking with the EU ETS and the CO2 tax may be convenient, but it does not provide a sustainable solution to the most pressing problem of our time. Politicians are caught in a vicious circle from which they cannot - cannot - find their way out. There are good and understandable reasons for everything the government does. What is missing, however, is a sustainable, systemic solution to fulfill its important social mission of "climate protection". 

This is why the NGO SaveClimate.Earth is putting forward a concept for debate as a counter-proposal to the CO₂ tax and EU ETS that reliably guarantees compliance with an agreed emissions reduction pathway in a socially responsible way. A new approach that promotes individual responsibility and completely shifts the control potential to all consumers by means of personally tradable CO2 budgets.

 

Because if any climate policy method has a chance of gaining majority support, then it must not only be able to achieve the necessary emissions reduction quickly and effectively, it must also function in an extraordinarily fair manner. For example, by turning the current operating principle of climate policy on its head and shifting emissions trading completely to the citizen level:

 

An approach that provides each individual citizen with exactly the same CO₂ budget to pay for their individual CO₂ consumption. An ecological basic income that is the same for everyone by means of a complementary climate currency ECO (Earth Carbon Obligation) thus sets the necessary ecological guard rails within which everyone can move freely and decide for themselves how they integrate climate protection into their lives - and not whether!

 

Such a concept does not require any additional regulatory increases, as is the case with the EU ETS or the CO₂ tax, for example. 

 

In order to improve the competitiveness of our industry, additional taxation must also be eliminated. After all, the aim must also be to keep energy-intensive companies in the country and prevent carbon leakage. The transformation push towards defossilization should be based on contingent personal emissions budgets. Thanks to the market-based approach of the ECO climate currency, the most suitable methods and most efficient technologies that achieve the greatest reduction in emissions with the least financial outlay are automatically applied. It solves the urgent problem of linking national interests with global necessities - without the need to implement often unpopular political measures and monitor compliance.

 

We can no longer allow the selfish vested interests of a few and the fear of change to prevent us from taking the necessary steps towards a future worth living for us all. It is time for us to break free from the past and work together to create a new economic model that meets the challenges of climate change and enables a sustainable future for all in a socially just way.

 

The non-profit organization for sustainable economics SaveClimate.Earth describes how such an alternative model could initially be introduced at EU level in its "Exit Strategy Climate Currency ECO" (Oekom publishing house, 2023).