Climate and Competitiveness

BERLIN – As Europe’s debt crisis fades, another economic disaster seems to be looming – the price of energy. Since the early 2000’s, average electricity prices for Europe’s industries have more or less doubled, and European companies now pay twice as much for gas as their US competitors do. Are Europe’s highly ambitious climate policies – which seek to increase costs for “bad” energy sources – destroying the continent’s industrial base?

At first glance, the numbers seem to support the doomsayers. How can such a huge price gap not have an impact on competitiveness? But if high energy prices lead to declining exports, how is it that Germany, which boasts some of the world’s most ambitious climate policies, has doubled its exports since 2000?

In fact, empirical evidence shows that in many cases, further reducing carbon-dioxide emissions might help to make industries more competitive. Exploring this potential could open up significant opportunities not only to combat climate change, but also to foster Europe’s long-term economic robustness.

Since 2005, when the European Union introduced its Emissions Trading System, German industry has achieved massive gains in market share, despite energy prices having risen much faster than in the US and elsewhere. According to OECD estimates, the relative export performance of high-cost Germany increased by 10% from 2005 to 2013, while US exports grew only 1.2% faster than demand in the rest of the world. In 2013, both German and US exports fell slightly in relative terms – hardly a sign of an energy-driven competitiveness divide.