Why the lower carbon emissions in Germany are actually bad news for the energy transition

On 4 January Agora Energiewende, a German think tank in support of the German energy transition policy, published a report with mixed news: yes, the emissions were the lowest in 70 years, but only 15% of that was due to climate policies. German industrial output is collapsing.

Let's start with some numbers: In 2023, Germany's greenhouse gas emissions fall to 673 million tons of CO2 eq, representing a drop of 73 megatonnes compared to 2022, according to Agora. Using numbers from Our world in data, we see a sharp decline over the past few years: 665 mton in 2022, 679 mton in 2021, 647 mton in the anomalous covid-year of 2020, 707 mton in 2019, and 755 mton in 2018. The numbers here might be different to what Agora is using, because Agora is using CO2 equivalent emissions, so including sources like methane, whereas OWID has these split up. Regardless, the trend line is clearly downwards.

It might also be interesting to compare this to France, that made a serious step towards decarbonising their electricity grid in the 1970s and '80s, as a response to the 1973 oil crisis. France clearly has a much lower annual emissions, although at almost 300 mtons for 2022, still a lot needs to be done. Another way to look at it is per capita emissions, where France also stands a lot lower at 4.6 tons per capita, compared to Germany's 8 tons. This includes not just household use, but all of transport, industry, etc, spread out to all inhabitants.

But Agora warns us that not all is good: "The majority of the reduction compared to 2022 is due to an unexpectedly strong decline in coal consumption and crisis-related crisis-related declines in energy-intensive industries. Only around 15 percent of the emission reductions are secured in the long term."

Despite progress in renewable energy, Agora reports that this is due to lower primary energy consumption at 2997 TWh, a drop of 12.5 % compared to 2022. Targets in making buildings or transportation more energy efficient have been missing their targets for years in a row.

More importantly though is the industrial development. An illuminating graph comes from this paper by David Blake that goes into the Eurozone's cross-border payment system, called Target 2, where he also deals with German industrial output:

"Figure 37 shows that Germany’s net public investment as a share of GDP has been negative for most of this century. Yanis Varoufakis has called it ‘a slow burning collapse of the German industrial model. They didn’t invest for 13 years and now it has come back to haunt them. They have lost their access to cheap Russian gas and are losing their easy access to the Chinese market. They will still make cars, but a lot of the value added will slip away. There is going to be a gradual pauperisation’."

This bit hits the crucial problem: without an industrial base we're not going to be able to maintain our lifestyle, let alone be able to move towards a greener future, which needs loads of steel production, high energy refinement, electronics manufacturing, resources extraction, and more. That half of the drop in 2023 is due to industrial output collapsing is, frankly, alarming.

Early last year industrial chemistry giant BASF for example announced cutting 2600 jobs at its site in Ludwigshafen after the energy crisis of 2022. But high energy prices have been part of a longer trend. Here's a list of kWh prices in Q1 2022, show Germany at the very top, with Denmark, regarding expensive electricity. France is at place 47, at less than half the price.

I'm making this comparison as I see a developing trend. Germany has been the historic economic powerhouse of the EU. This is set to change. The German economy contracted last year, by 0,3% and will only see a very small growth this year, by about 0,8%, should everything go as predicted. France is set to grow by 1.2% and Poland is set to grow by 2.7%. This is inevitably going to change the power balance in Europe over the next generation, should Germany insist on this course. Poland will become the new powerhouse, with France remaining at second place. In this context, it's interesting to note Poland is enthusiastically embracing nuclear energy, planning on six large units and dozens of SMRs, securing their energy future and decarbonising in the process.

Germany meanwhile seems on a path to become a stagnant or even backwater economy. How are they going to finance their ludicrously expensive energy transition in the future, one wonders.

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