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  Europe's Energy Crisis: Skyrocketing Oil Prices Threaten Prosperity

Europe's Energy Crisis Skyrocketing Oil Prices Threaten Prosperity

By SPIEGEL Staff

Part 2: The Role of CO2 Reduction

There is another factor that may start driving costs up for industry and consumers in the foreseeable future. Since the beginning of 2008, the government has been auctioning off pollution rights for carbon dioxide emissions. At first, only 10 percent of certificates will exchange hands in this way each year.

But that’s just the beginning. As the European Commission imagines it, starting in 2013, all emissions rights for energy corporations will be sold by auction and subsequently traded like gold or stocks. And because considerably fewer certificates will be issued than there will be CO2 emitted in Europe, there is an incentive for companies to implement clean technology or to shut down old facilities early.

In fact, according to a study by the German Association of Industrial Energy and Power Management (VIK), energy providers will have to pay the government between €9 billion and €14 billion ($14 billion and $21.8 billion) every year from 2013 to 2020 for these certificates. Companies will largely be able to pass these costs on to consumers, and electricity costs are likely to climb drastically.

Under these circumstances, it's no wonder that economic researchers are worried about the predicted energy conservation shock. According to the calculations of Claudia Kemfert, energy expert at the Berlin-based German Institute for Economic Research, Germans will spend around €90 billion ($140 billion) this year on coal, oil and natural gas. That’s €15 billion ($23.4 billion), or 20 percent, more than they did last year.

“That’s a significant cost burden for the German economy,” says Kemfert. And, since the additional expenditures of businesses and households for energy mean fewer funds left over to cover other costs, it's also a danger to the economy. Businesses invest less in new machinery, and consumers no longer go out to restaurants and cinemas or refrain from buying new cars, all of which are factors that slow economic growth.

Economists had actually hoped that private consumption would boom this year, and that it would assume the role of the economy's main driving force. For now, though, nothing has come of that, and consumer demand is stagnant.

The Environmental Hit

As they look to the future -- and even though the German economy showed an impressive 1.5 percent growth rate in the first quarter -- many economic experts are already considerably more pessimistic. The fear now is that this could simply result in the coming crash being all the more severe.

Moreover, according to the latest predictions, the currently high energy prices could seriously reduce this year’s rate of growth. That the economy suffers when energy prices rise is hardly surprising. But there could be a second victim of the increasing costs in Germany: the environment.

German Chancellor Angela Merkel had planned to make this week the tentative high point of her environment stategy. Before presenting herself to the world as nature’s protector on Wednesday at the UN Conference on Biological Diversity in Bonn, Merkel wanted to finalize her climate-policy masterpiece in the cabinet. The last outstanding decisions were supposed to be resolved, such as how by 2020 Germans would emit 40 percent less carbon dioxide than they did in 1990.

The package of measures is called "Meseberg 2” after the federal government’s guesthouse near Berlin. It was there, last summer, that the grand coalition last demonstrated something like a capacity for action.

Now the whole plan -- from energy conservation and heating cost regulations to environmental taxation of automobiles -- threatens to collapse around Merkel.

A Wedge in the Coalition

Since energy prices started their rapid rise, Merkel’s party has developed a phobia of anything that might carry a whiff of further costs to the electorate. “We judge every measure first and foremost in terms of costs for the consumer,” says Katherina Reiche, the deputy chairwoman of the CDU’s parliamentary group, in describing the party's new line. Using this battle cry, CDU member of parliaments are fighting to cut the conservation requirements in the package as much as possible.

Environment Minister Gabriel’s behavior is just as inconsistent. On the one hand, he urges that the Meseberg package be waved through without any cuts. On the other, he advocates for commuter tax relief calculated to help owners of older, less fuel-efficient cars, a demographic he evidently assumes to include a high number of voters for his party, the SPD.

The CDU-SPD coalition is hopelessly at odds with itself, failing to make a decision on stricter regulations for energy conservation or to provide incentives for environmentally friendly cars and trucks. Last week the coalition was unable to reach an expected agreement on a reform of the automobile tax, and the remaining points of the Meseberg package were postponed once again. Now more than ever, it is unclear how the government plans to reach its loudly proclaimed goal of cutting CO2 emissions by a further 20 percent over the next 12 years.

A Silver Lining?

Yet, at the same time, experts actually see in the rising energy prices of the last months a chance to bring the economy and the environment even closer together. It would be wrong, they argue, to try to counteract the hike in oil and natural gas prices by reducing the petroleum tax or environmental taxes. According to their reasoning, Germany ultimately wants to move away from oil, and the increase in prices is sending the right signal.

In their opinion, the right reaction to an increasing scarcity of resources would be to implement the government’s climate-protection measures more efficiently than is currently being done. More funds need to be allocated to modernizing antiquated power plants, they argue, and fewer to questionable subsidies for the expensive solar-power industry.

Nevertheless, it appears that the CDU and SPD can no longer agree on a rational energy and climate policy. Instead, both sides prefer to sharpen their battle rhetoric. For example, a high-ranking employee at Gabriel's Environment Ministry says: “The CDU and CSU sit there like the Russians during the Cold War and answer everything with ‘nyet.’”