Debates in the Bundestag: “Climate protection is not an unforeseen emergency”

The Economic Advisory Council is pushing for the debt brake in the Basic Law to be relaxed. But: Relying too much on subsidies when it comes to climate doesn’t make sense, warns economist Veronika Grimm in an interview.

tagesschau.de: After the Federal Constitutional Court’s ruling, the budget had to be readjusted. The government then cut back on some climate funding programs; others, such as investments in the rail network, will remain intact and will be financed from other sources. Has the federal government made the right compromises?

Veronica Grimm: I think they could have been more consistent. Working as heavily with subsidies and funding as the federal government imagines costs far too much money. For this reason alone, we should have switched to CO2 pricing and anchored climate money in this context. So that people are relieved of their fear of being burdened too heavily by rising CO2 prices.

tagesschau.de: If, in your view, the CO2 price plus climate money are the instruments of choice, does that mean on the other hand: reduce subsidies and funding for more climate protection?

Grimm: Yes, we need CO2 pricing as a key instrument because it is about moving the entire economy, all households, all large and small companies towards climate protection. This will never be achieved through funding measures. If you do it through CO2 pricing, then the climate-friendly business models will pay off on their own.

tagesschau.de: Others say: But we need these large investments in the economy and then have to finance them with debt.

Grimm: Yes, we have been watching this game for decades. Whenever players get into trouble, especially large players, the state is called upon. And that may be in the interests of the big corporations, but it is not always in the interests of the entire economy. It is usually not wise to give out subsidies to individual businesses.

In the end, it benefits today’s actors. And not future generations. They are usually not asked about because those affected are either not yet eligible to vote or perhaps have not even been born yet. For example, education, massive investments in education: these are investments in our future, and this ensures future economic growth. This can possibly also be done with debt financing.

But that’s not what’s happening politically. Politically, what happens more often is that you run after the majority of voters. And unfortunately, in our aging society, they are currently very old on average.

“A more effective instrument is CO2 pricing”

tagesschau.de: Climate protection is a challenge for humanity that has never existed before. There are politicians and economists who argue that we now have to take on large amounts of debt for a few years to meet this challenge. How do you feel about this?

Grimm: Well, I would put it the other way around: the advocates of a strong state and high debt have always hijacked every issue that concerns society in order to claim that higher debt is the solution to this problem. And currently it is climate protection. And I think you have to be very careful not to fall for it. That the legitimate popularity of climate protection is being exploited to demand a stronger, very decisive state.

The more effective instrument for climate protection is CO2 pricing. And if you want to use state money, it is to cushion the effects of this transformation for those who cannot afford these hardships financially. Those who are socially weak or for companies that are strategically important to us. What you have to be very careful with: In the end, every cookie factory is strategically important, and if you give in to that, you can waste a lot of money and leave problems for the future generation.

tagesschau.de: Does climate protection necessarily cost a lot?

Grimm: First of all: Of course it will require something from us to pursue climate protection. This cannot be explained away. Again: It is important to adapt and readjust the pricing system via CO2 pricing. Then the person who protects the climate through his behavior is not the stupid one, but rather he benefits financially compared to those who do not protect the climate.

tagesschau.de: And where should funding be used?

Grimm: When it comes to keeping technological competencies in the country, in chemistry, in the steel sector, in the cement industry. Or to finance hydrogen imports to Germany. This ramp-up has to be carried out with massive state funds and the necessary infrastructure has to be built. In this way, we can enable industries in Germany to actually produce on the basis of climate-neutral processes. But these are not individual economic subsidies.

tagesschau.de: Keyword: reduction of subsidies. Was it right to remove agricultural diesel subsidies?

Grimm: Yes, I believe it is right to remove subsidies for fossil fuels. One problem with the federal government’s approach was: If you cut subsidies in agriculture and do it in the winter when all the tractors are in the hangar, then that is of course not incredibly politically wise. It should have been communicated better, made more balanced. If not only one group is affected, but everyone has to make compromises equally, then perhaps the acceptance of change is greater.

“A long-term, permanent task”

tagesschau.de: Which subsidies should have been eliminated?

Grimm: For example, the commuter allowance: Do we really need to encourage people to live far away from their place of work to the extent that it is happening now? On the other hand, you don’t want to cut anything for those who can’t afford to live in the big cities. In this respect, when you restructure the system, I think you have to proceed very carefully and make sure that you don’t do it in a socially unbalanced way.

tagesschau.de: With Corona, they said that this is an exceptional situation and that we now need a special pot beyond the debt brake. Likewise with Ukraine. Why don’t we define the same special situation for the climate?

Grimm: Yes, the exemption from the debt brake, you can justifiably pull out the card if an unforeseen emergency occurs that completely overwhelms the financial leeway you have in normal times. And that makes sense, because then the state remains able to act. But climate protection is not an unforeseen crisis. Climate protection is a long-term, permanent task.

And that is precisely why one must ensure that the state remains able to act at all times and does not get into trouble at some point, for example due to rising interest rates for government bonds on the capital markets. At some point, even if the debt brake is suspended, there will be an automatic debt brake via the capital markets.

The interview was conducted by Judith Kösters, HR.