OECD Economics Department Working Papers
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
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.
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