Protecting the Climate: Global, Efficient, and Innovative for a Competitive Economy

Germany and the EU have set ambitious CO2 reduction targets compared internationally.

However, the measures taken for climate protection are sometimes characterised by bureaucratic detail regulations for businesses. In addition, climate policy measures are currently often implemented without sufficient consideration of the international competitiveness of companies.

Reducing greenhouse gas emissions at the local, national, or EU level is important but by itself is not an indicator of effective climate protection policy: Climate protection can only succeed through joint global efforts. Internationally coordinated efforts are also necessary to create globally fair competitive conditions for companies.

Climate protection policy can quickly become ineffective if it leads to "carbon leakage" and the relocation of value chains abroad. Despite the Paris Agreement, international competitors of the EU have so far hardly implemented comparable climate protection measures. Therefore, effective and unbureaucratic carbon leakage protection is necessary, alongside sufficient climate-neutral alternatives for the green transformation of industry.

The following guidelines should guide economic policy decisions

The EU's technological advantage in climate protection should be leveraged to develop and expand strategic partnerships and markets for climate protection technologies globally. A significant contribution to this can be made through the global emissions trading systems and international market mechanisms established under the Paris Agreement.

Additionally, certified CO₂-reduction projects in Germany and third countries should be able to contribute to achieving German and European climate goals by implementing Article 6 of the Paris Agreement (voluntary cooperation in implementing nationally determined contributions to climate protection). Reduction potentials should be realized where they are most sustainable and efficient.

From the perspective of German business, the Climate Club founded by the G7 nations is of outstanding importance. It should help realize a comprehensive and coordinated approach to climate protection at the international level. To fully harness the impact of these measures and relieve domestic companies, as many countries as possible should agree on the same goals and measures. Standards should be easily comparable so they can be mutually recognized without disadvantaging the domestic economy.

Without a "level playing field" for CO₂ pricing, European industry stands to lose its international competitiveness significantly – despite proactive measures by companies. Energy-intensive and emission-intensive enterprises need compensation for competitive disadvantages caused by high CO₂ costs and other climate policy burdens to maintain their locations – at least until climate-neutral alternatives that match in cost and scope become available. For this, the European and national state aid provisions must be aligned with the requirements of ambitious climate protection policies.

The partial free allocation of certificates to industrial plants under the European Emissions Trading Scheme and electricity price compensation should be maintained as long as it is necessary to preserve competitiveness. Until the CBAM (Carbon Border Adjustment Mechanism) is fully developed, carbon leakage protection measures need to remain in place. When setting efficiency benchmarks, the European Commission should not exceed the economically and technologically feasible limits and should consider technological progress.

The CO₂ border adjustment mechanism, CBAM, has led to trade disruptions and significant bureaucratic burdens for affected businesses based on initial experiences. A pricing mechanism, which imposes costs on CO₂ emissions both within the EU and on imported products, could safeguard competitiveness and prevent competitive disadvantages for European industry in export markets. Simplifications in the CBAM are urgently needed for this purpose, particularly a higher threshold for reporting requirements, permanent standard values for the CO₂ content of products, and a straightforward and reliable reporting procedure.

The revenues from CO₂ pricing should also be used to reduce taxes, levies, and surcharges on businesses – in addition to providing relief to prevent carbon leakage for particularly affected, energy-intensive companies. This will also be necessary under the future ETS II framework, as long as the CBAM or multilateral agreements do not establish equal competitive conditions with other countries. Such relief measures should be executed without bureaucracy and with legal certainty.