ZEW - Centre for European Economic Research

05/23/2023 | Press release | Distributed by Public on 05/23/2023 01:41

Subsidisation of the Electricity Price: Reliefs Jeopardise Transformation // German Electricity Price Subsidisation Weakens Incentives for Energy Conservation and Makes[...]

German Electricity Price Subsidisation Weakens Incentives for Energy Conservation and Makes Innovations Less Attractive

The energy-intensive sectors of the manufacturing industry have increased rather than reduced their energy consumption in the past years up to 2017.

A broad subsidisation of industrial electricity prices, as with the German "Brückenstrompreis", reduces the incentive to save energy, makes innovations less attractive, and jeopardises the transformation of the German economy towards carbon-neutral production. Recent research conducted by ZEW Mannheim and the University of Mannheim reveals that the industrial sector responds to increasing electricity prices by reducing its power consumption. At the same time, the study results do not provide empirical evidence that higher electricity prices have harmed competitiveness, as measured by revenues and employment.

"When we lower electricity prices, it weakens the incentive to conserve energy. An analysis of the Special Equalization Scheme (BesAR) reveals that businesses exempt from the EEG levy saved less electricity compared to non-exempt businesses," explains Kathrine von Graevenitz, deputy head of the ZEW's "Environmental and Climate Economics" Unit. "If Germany wants to achieve carbon neutrality, it must consider the future viability of energy-intensive industries. After all, Germany will only be able to generate a limited amount of electricity on its own in the future. At the same time, we need electricity across the board: for electric vehicles, heat pumps, and the electrification of the industry," she adds.