The German government should make further improvements to the German Climate Change Act in the coming legislative period. This is what Karen Pittel, Director of the ifo Center for Energy, Climate, and Resources, writes in an article for ifo Schnelldienst. “Tomorrow, the EU publishes its Fit for 55 package. As a consequence, it might become necessary to revise the Climate Change Act,” Pittel says. It was only recently, in June 2021, that policymakers amended the Act following the ruling of Germany’s Federal Constitutional Court.
“The reform of the Climate Change Act was too hasty. Germany should have maintained a stronger focus on European climate and energy policy,” Pittel says. The introduction of a second effective emissions trading system for heat and transport is currently being discussed at the EU level. “Should it come into force, setting annual emissions targets for individual sectors of the German economy makes little sense, since sector-specific emissions reductions will arise as a result of supply and demand at the European level,” the article says.
Moreover, the sector-specific targets are not very effective in terms of sustainable climate protection. If an economic sector fails to reach its target in a given year, policymakers have three months to change that by introducing emergency measures. This leads to planning uncertainty for companies and investors, especially if failure to meet reduction targets is attributable to short-term external factors. “If the Act is revised again, legislators should abolish sector-specific targets entirely, or at least replace them with corridors for sector-specific emissions reductions,” Pittel writes.
Federal policy should work at both the German and European levels to strengthen the effectiveness of CO2 price signals. This includes a fundamental reform of energy taxes as well as emission reductions in the electricity sector through the expansion of renewables.