Report by Jacobs University recommends energy market design measures on the way to climate neutrality
October 28, 2021
Adjustment of the CO2 price, no further renewable energy surcharge (EEG – Renewable Energy Sources Act), and, if possible, complete abolition of the electricity tax – these are key measures recommended in a report by the Bremen Energy Research working group at Jacobs University. It was prepared as part of the recently published lead study "Towards Climate Neutrality (Aufbruch Klimaneutralität)" by the German Energy Agency (dena). The study aims to provide the future German government with concrete solutions for achieving climate neutrality by 2045.
Ten scientific institutes, more than 75 companies and a top-class advisory board contributed their expertise to the lead study. "Our task at Jacobs University was to identify the key challenges in energy market design to achieve climate neutrality," said Marius Buchmann, Research Associate and project manager for the report at Professor Gert Brunekreeft's Department of Energy Economics. "The measures we recommend should be implementable quickly, preferably in the coming legislative period." Energy market design considers all issues that deal with the generation, transport, consumption and marketing of energy. It aims to establish security of supply, affordability and environmental sustainability in rapidly changing energy markets.
"In the transformation to climate neutrality, the steering effect of the CO2 price and its adaptation to the requirements of climate neutrality play a key role," Buchmann explained. In addition to adapting the price accordingly, the recommended measures include hedging the investment risks of companies in the basic materials industry, such as the chemical or steel-producing industries. They will have to renew many of their long-lived plants in the near future, but only know in the short term how the CO2 price will develop. The experts suggest that the government should bear the regulatory risk, thereby reducing the financing costs of investments in CO2 abatement technology.
"Taxes, levies and surcharges distort the incentive effect of an efficient CO2 price," Buchmann said. The authors of the report, entitled "Need for action and further development options in energy market design on the way to climate neutrality," recommend abolishing or reducing them. The costs that have so far been covered by the levies should be borne by the general budget.
Achieving climate neutrality requires a great deal of infrastructure in the various sectors. Therefore, it is important to align investment incentives across sectors. It is recommended that the grid charging system in the electricity sector be made more flexible. Furthermore, with increasing coupling of the sectors, for example via heat pumps or electrolyzers for the production of hydrogen, the need for coordination of infrastructure planning across sector boundaries increases. As a solution, the report proposes a "participatory system development plan with an interface towards the market driven hydrogen infrastructure." Both the regulated grid operators (electricity and gas) and the investments of the market players would have to be included in the planning.
Questions are answered by:
Marius Buchmann, Ph.D.
Research Associate and Project Manager Working Group "Bremen Energy Research
Phone: +49 421 200-4868
Email: m.buchmann [at] jacobs-university.de
dena Lead Study: Towards Climate Neutrality (Aufbruch Klimaneutralität)
https://www.dena.de/en/newsroom/news/dena-pilot-study-towards-climate-neutrality
Report dena Lead Study: Need for action and further development options in energy market design on the way to climate neutrality (German)
Authors: Marius Buchmann, Gert Brunekreeft, Christine Brandstätt, Martin Palovic und Anna Pechan
https://bremen-energy-research.de/news/#n037