How strong is the market?

Dear readers,

Suddenly it’s all over the news: Climate protection is finally becoming economical. The excitement of the week was the sale of Viessmann’s core business to the American company Carrier Global. Mind you: the Viessmann family did this voluntarily because they primarily want to use it to save the heat pump business. The company is too small to survive in the market that will bring gigantic growth rates in the next few years. Powerful competitors are just around the corner: corporations like Samsung or LG (both South Korea) or Daikin, Panasonic and Mitsubishi from Japan.

In such a case, there are several options for management. An IPO would be conceivable in order to raise money from investors with which the many billions of euros in necessary investments could be made – that’s what every start-up company does. The alternative would be to finance oneself on the capital market by issuing bonds, which is also not unusual. Viessmann could finance itself with borrowed money.

But the family decided against these two variants. Whether this is the right strategy is by no means certain. But that’s how it is in the market economy: the possibility of failure is part of it. That has also just CDU boss Friedrich Merz emphasized at the future congress of his party. Otherwise he campaigned verbosely for climate protection with market-based means. On this point, the Union does not exactly argue consistently. In view of the Viessmann deal, Julia Klöckner, the economic policy spokeswoman for the CDU/CSU parliamentary group, warned that “foreign, financially strong heat pump manufacturers from China are also pushing into the market here”.

Michael Kruse, member of the FDP parliamentary group and fan of the market economy, even fears that German technology will be sold out. Kruse and Klöckner are apparently afraid of too much competition. This is strange because the example of Viessmann shows that competition will not only make heat pumps more efficient over the next few years, but also significantly cheaper because the number of units is increasing (economies of scale) and suppliers are fighting for market share. Consumers will benefit from this.

Expert Edenhofer: Pricing of CO₂ emissions as the most important tool against climate change

Ottmar Edenhofer, Germany’s most renowned climate economist, also spoke at the congress. He, too, propagates climate protection by means of the market. The most important tool for him is the pricing of CO₂ emissions. If this is consistently enforced, heating with oil and gas heating systems, for example, will become so expensive in the next few years that replacing the old fossil heating system will become necessary.

Spoke at the CDU Future Congress with party leader Friedrich Merz: Germany’s most important climate economist, Ottmar Edenhofer, director and chief economist of the Potsdam Institute for Climate Impact Research.

© Source: IMAGO/Chris Emil Janssen

However, investments in heat pumps will remain substantial despite economies of scale. Edenhofer also concedes that if climate protection is to be effective, then low-income households will face a massive financial burden, in many ways. Because, for example, the price of fuel is also going up significantly.

For Edenhofer, this means that there must be financial support for the poor. And that is not the only task of the state. An industrial policy is needed, for example to force the settlement of solar companies in Germany. Possibly also to help heat pump production in Europe with subsidies. Because Klöckner is right on one point: the danger of Chinese suppliers flooding the local market with dumping prices is real.

The market economy alone cannot cope with the enormous transformation

What does this mean for fiscal policy? The answer was heard in the news on Friday morning: according to a study by the think tank New Economics Foundation, only very few EU countries can achieve the Paris climate goals if they comply with the debt rules of the EU’s Stability and Growth Pact. Although these are to be reformed, the basic rules (national debt at a maximum of 60 percent and budget deficits below 3 percent of economic output) are to remain in place.

All of this shows that a market economy is necessary, but that it alone cannot manage the enormous transformation. It also needs an active state that spends a lot of money. The restrictive debt rules of the EU and the local debt brake were often ignored in the past, and politicians must finally say goodbye to them as soon as possible, otherwise climate protection and the economy will go down the drain.

Your Frank-Thomas Wenzel

What can I do?

In order to get a better grip on the consequences of climate change in cities, a British scientist recommends targeted incentives for garden owners. The idea presented by Ross Cameron from the University of Sheffield should be rewarded for creating green, sustainable gardens, for example with tax breaks or reduced water prices.

Gardens, which account for as much as a third of urban space, are “essential for keeping buildings and urban environments cool in the summer, absorbing rain, preventing flooding and providing an important refuge for animals,” argues Cameron.

A gravel garden (left) and a green garden (symbol image).

© Source: Felix Kästle/dpa, symbolic image

That gives hope

Traffic is one of the (many) problem children when it comes to climate protection. Last year, the targets for CO₂ savings were missed. Emissions increased slightly compared to the previous year to 148 million tons of CO₂. After the corona restrictions were largely lifted, car traffic increased again slightly, according to the Federal Environment Agency.

What’s hope about that? Something could change. Because the 49-euro ticket or Germany ticket starts on Monday. Of course, that will not be enough to ensure the immediate switch from cars to local public transport. But it is a start – and in many cases a real relief for commuters.

Or as Jens Hilgenberg, Head of Transport Policy at the German Environment and Nature Conservation Union puts it: “The 49-euro ticket makes buses and trains much less complicated, but doesn’t conjure up any new stations, stops or connections to the countryside. The introduction can therefore only be the start.”

What was important this week

The outlook

“We have a need for action,” said Vice Chancellor and Economics Minister Robert Habeck last week – and meant the heat transition, with which Germany is late. For this reason, the installation of oil and gas heating systems will be banned in Germany from 2024. The corresponding building energy law and the heating exchange are still highly controversial in the traffic light – although it has already passed the Cabinet.

Today, Friday, April 28, Robert Habeck can explain why he thinks the law makes sense. Then the Vice Chancellor, Economics and Climate Protection Minister will be a live guest at 7.30 p.m. at “RND on site” in Kiel. Follow the talk live here.

On Friday at “RND on site” in Kiel: Robert Habeck.

© Source: RND

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