Energy transition and climate protection –
Challenge and opportunity for German industry?

Dialogue Forum in cooperation with acatech – Deutsche Akademie der Technikwissenschaften

19 November 2024, Munich Re, Saal Europe, Giselastraße 21, 80802 Munich

Not a week goes by without bad news: thousands of jobs, entire sites and numerous companies in Germany are on the brink of collapse. How is this related to the important and urgently needed transition to a climate-neutral economy? How will energy-intensive companies have to position themselves in the future, what opportunities will arise for German industry despite everything, and how should the new federal government shape industrial policy? Answers to these and other questions were provided by the experts at the Dialogue Forum.

Podium of the Dialogue Forum on 19 November 2024 — Lisa Nienhaus, head of the SZ business editorial team, took over the moderation of the panel guests that evening.

The coalition in Berlin has failed because it has not found a way to reconcile economic growth and climate protection in the face of the many global crises. The tug-of-war over the right policy is reflected in the subdued growth. "Industrial production has fallen by 13 per cent since 2018, and many other economic indicators are at the same level as before the coronavirus crisis," said Prof. Siegfried Russwurm, President of the Federation of German Industries (BDI) and member of the Executive Board of the German National Academy of Science and Engineering (acatech), in his assessment of the situation. The share of industry in total value added is threatening to fall below the 20 per cent mark, which will have an impact on prosperity. This is because industrial jobs are particularly well paid.

"The emperor is naked."

"We are finding it difficult to remain globally competitive, and we are also failing to achieve our goals when it comes to climate neutrality," he continued. He said that the constant rise in energy costs was making it more difficult for companies to reliably calculate their investments, with the result that they were either not made at all or were made in more attractive foreign countries. The successes of many German companies abroad showed that the weakness in this country was not due to a lack of innovative strength, but to the framework conditions. Russwurm's conclusion: "The emperor is naked when it comes to his economic and climate policy successes."

We are finding it difficult to remain globally competitive, and we are also failing to achieve our goals when it comes to climate neutrality.

Prof. Dr.-Ing. Siegfried Russwurm

President of the Federation of the German Industries e.V. /

acatech

"The economic weakness stems from the fact that the location is not attractive enough," agreed Prof. Dr. Christoph M. Schmidt, President of the RWI-Leibniz Institute for Economic Research and Vice President of acatech. This is because the government, with its emphasis on social issues, has set the wrong priorities and ignored trade-offs in areas such as deglobalisation, demographic change and digitalisation. Furthermore, a spiral of intervention has been set in motion to steer the decisions of companies and consumers in the desired direction. "For me, the planned economy approach is the core error of the traffic light coalition. More market economy is the only way out of the current situation," Schmidt was convinced.

Courage and consistency needed

"There is no alternative to climate protection. However, we need the right framework conditions to ensure that the transformation also becomes a business case," said Dr. Christian Hartel, CEO of Wacker Chemie AG. He said that the chemical industry, in particular, is on the road to climate neutrality and relies on the availability of sufficient affordable renewable energy, which is currently not the case. "This is make it or break it," he clarified, adding: "In addition to the right attitude, we also need the courage and consistency to go down this path and stick to it." He would like to see policymakers provide a clear vision for the long term, stating where we want to go and what interim goals we are aiming for. "It's not enough just to refer to climate neutrality in 2045," said Hartel. He is critical of the flight to lower-cost countries, because Wacker's plant and equipment has grown over decades and is integrated into an efficient network structure. However, Germany is currently at a clear disadvantage when it comes to planning new facilities because no one can say where the journey is headed.

There is no alternative to climate protection. However, we need the right framework conditions to ensure that the transformation also becomes a business case.

Dr. Christian Hartel

Wacker Chemie AG

CEO

According to Russwurm, the fact that foreign direct investment in Germany is declining, while investment abroad continues unabated, shows that deindustrialisation is already underway. "These are only harbingers of the development, but by the time it is reflected in declining industrial figures, it will be too late," he warned. People are already feeling the creeping decline and the associated loss of prosperity. He said that industry can only fulfil its role as a wealth engine in the high-tech and production sectors if it focuses more on innovation. Russwurm believes it is an illusion to think that the service sector alone can fill the gap left by the migrating industry.

Innovation chains at risk

He also advised against placing too much hope in the emergence of new industries in the course of the transformation, because the manifold interdependencies would be underestimated. "Two-thirds of the energy-intensive ceramics industry has nothing to do with cups or plates, but is high-tech ceramics, for example for medical technology, aircraft turbines or energy networks. If you do away with the ceramics industry, you also cut off innovation chains," says the economist. Of course, one has to ask how many energy-intensive companies Germany really needs. But then appropriate substitute products would have to be found that match the qualification structure of the people in this country as closely as possible.

"I consider academic planning games to be extremely dangerous and have the impression that in some economic circles, there is an almost lust for simplistically presenting Germany as one company," replied Hartel, CEO of Wacker. He said that the economy consists of a large number of companies and that it is a fallacy to believe that these closely intertwined supply chains, which have grown over decades and have mutually benefited each other, can simply be dissolved.

Dr. Christian Hartel, CEO of Wacker Chemie AG, used the example of silicon to illustrate how energy-intensive its production is. At the same time, however, the raw material is urgently needed for the development of climate-friendly technologies, such as photovoltaic systems.

Creative solutions are needed

"The transformation is a major undertaking, which is why I believe that it is the duty of politicians to help, for example, with a special industrial electricity price." They have to support industry for a certain period of time until, according to Hartel's scenario, more favourable electricity prices are available again in the 2030s in conjunction with Europe and the expansion of renewable energies. Even if Germany has a comparative disadvantage in the generation of renewable energies, this is no reason to abandon what has been achieved so far and to migrate to more favourable locations. Rather, work must be done on concepts to maintain competitiveness under the local conditions. "I miss a little the creativity in the discussion on how we can successfully shape the new phase," he criticised.

"For me, the failed industrial electricity price is the industrial policy plaster that I apply to the symptoms without tackling the causes," replied acatech Vice President Schmidt. He assumes that the electricity price will remain relatively high, which is also the prevailing opinion on the financial markets. The mistake was to plan an exit without an entry, so Germany will continue to be dependent on energy imports.

The hope for hydrogen as an energy source of the future should not be overestimated either. "It is one of the most hyped topics that will not help solve the problems in the near future," Hartel estimates. The pricing of CO2 is much more important in the coming years to contribute to climate targets. "Hydrogen is a good example of what can go wrong," Russwurm added. In the EU, only hydrogen produced with green energy is wanted, instead of also promoting hydrogen from other energy sources on an interim basis. That would be like only allowing electric cars if they are charged with electricity from their own solar cell. In the end, according to Russwurm, investments in hydrogen projects are not made because they are not profitable. Added to this, cumbersome bureaucracy is a general obstacle for infrastructure projects: "We can't make it happen because the complexity ties our hands."

The state cannot rule

Politicians have many levers to support industry on the road to climate neutrality. The problem with this is that "we have to deal with the fact that individual actors determine our society and make their decisions. We have to work together to achieve the transformation in their reality and not in our will and imagination," Schmidt made clear. The state could set the framework, but it could not rule and ensure that everyone adheres to the rules. This is what makes market-based approaches so superior. "If we had the will to set higher CO2 prices and enforce them consistently, we could make faster progress," Schmidt concluded.

We have to deal with the fact that individual actors determine our society and make their decisions. We have to work together to achieve the transformation in their reality and not in our will and imagination.

Prof. Dr. Christoph M. Schmidt

President of the RWI - Leibniz Institute for Economic Research /

acatech Vice President

The new federal government, whoever forms it, faces a major challenge. It must set the framework conditions in such a way that industry, the "heart" of the German economy, becomes more competitive internationally again. And it must not neglect the concerns of ecology and climate change in addition to the purely economic aspects. The basis for a successful future is there. But the goal is not a sure-fire success.

Video of the event (German)

Munich Re Foundation

*************************************************************************

Agenda

Panel guests

Prof. Dr.-Ing. Siegfried Russwurm
President of the Federation of German Industries e.V. / acatech

Dr. Christian Hartel
Chairman of the Executive Board, Wacker Chemie AG

Prof. Dr. Christoph M. Schmidt
President of the RWI – Leibniz Institute for Economic Research / acatech Vice President

Moderation:
Lisa Nienhaus, Head of the business editorial team at the Süddeutsche Zeitung

Project partner

Dialogue Forum 2024 | November