Climate Protection in the Social Market Economy

Climate Protection and Social Market Economy

But how can climate protection be implemented in this country in concrete terms? Our social market economy, as an economic and social order, has regulatory instruments at its disposal that can be used to achieve climate protection effectively and in a socially acceptable manner.

The lesson deals with the regulatory framework for climate protection. Among other things, emissions trading, which can be used to effectively price CO2 emissions, will be discussed. In addition, a reflective examination of the energy transition and the Renewable Energy Sources Act (EEG) is promoted.

How much greenhouse gas emissions do you produce?

The so-called greenhouse gases carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and the group of fluorinated greenhouse gases (F-gases) are responsible for climate change.

The climate impact of these greenhouse gases is expressed in CO2 equivalents. This unit indicates how much a gas contributes to global warming compared to the same amount of CO2. Methane, for example, has a CO2 equivalent of 21, i.e. it is 21 times more climate-effective than carbon dioxide. Nevertheless, carbon dioxide accounts for 88% of the release of greenhouse gases in Germany.

In 2018, for example, an inhabitant of Germany produced an average of 9.2 tonnes of CO2. This was almost twice as high as the global average of 4.91 tonnes. Why is that? Despite comparatively high environmental standards, there are structural reasons for this: Germany is an "industrialized country" and has a high proportion of manufacturing industry.

In addition, we all produce greenhouse gases with our everyday actions and economies. Find out how much greenhouse gases some of your day-to-day activities cause.

Greenhouse gas emissions as a challenge for the market

Every day, we all produce greenhouse gas emissions that contribute to climate change with our actions and economic activities. The consequences harm us all and entail high costs. This explanatory video illustrates the different instruments that the social market economy has at its disposal to promote climate protection. Work out which instruments are involved.

Who produces how much greenhouse gas?

In 2019, a total of 809.8 million tonnes of CO2 equivalents were emitted in Germany. With the entry into force of the Federal Climate Protection Act in December 2019, an annually decreasing annual amount of emissions was created for the transport, energy, industry, buildings, agriculture and waste management sectors, among other things ("sector targets"). The individual sectors are responsible for different proportions of total greenhouse gas emissions in Germany. Find out which sector produces the most and which produces the least greenhouse gases.

Greenhouse gases in Germany (1990 –2050)

Since 1990 at the latest, it has been known that greenhouse gases have an impact on our global climate. All agreements to reduce greenhouse gases therefore always use 1990 as the reference year. Today, the central goal of German climate protection policy is to reduce greenhouse gas emissions. By 2020, they are to be reduced by 40 percent and by 2030 by 55 percent compared to 1990. In 2050, greenhouse gas neutrality is to be achieved in Germany.

However, there is repeated criticism that a reduction in greenhouse gas emissions causes too high costs and weakens economic performance. This goes hand in hand with the fact that Germany is responsible for only 2 percent of CO2 emissions and the demand for an orientation towards efficiency aspects.

Can the social market economy – the economic and social model of the Federal Republic of Germany – be a solution to combine business and climate protection in a meaningful way?

Social Market Economy and Climate Protection: How Does Emissions Trading Work?

Since 2005, the European Emissions Trading System (EU ETS) has been the EU's central climate protection instrument. It is intended to reduce the greenhouse gas emissions of the participating energy sector and energy-intensive industry. The EU ETS covers the emissions of around 11,000 installations across Europe. From 2021, a supplementary emissions trading system will also be introduced in Germany for almost all other CO2 emissions caused by the combustion of fossil fuels such as coal, oil and gas.

Under emissions trading, the polluters of emissions are only allowed to emit a certain amount of carbon dioxide (CO2). Every tonne of CO2 they emit must be covered by an emission allowance. These emission allowances are called certificates. If you emit more CO2, you have to buy more certificates – and pay for them. Those who emit less can sell their unused certificates. Over the years, fewer and fewer allowances are issued, which means that emission allowances are traded more and more scarcely and expensively on the market. As a result, the need to reduce CO2 emissions is increasing and is being reinforced by the market.

Companies A, B and C have been granted a fixed number of emission allowances. However, their actual emissions differ. So what will happen with emissions trading?

Climate protection in your company – make the right decision

In order to ensure effective and efficient climate protection, the European Parliament and the Council of the EU decided to introduce emissions trading in 2003. Rules and mechanisms for implementation have been adopted by the EU Parliament and the EU Council. As a result, since 2005 all companies subject to emissions trading throughout the EU have had to act according to the same rules, a so-called "level playing field".

However, how and to what extent the individual company ultimately participates in emissions trading is up to the companies themselves – as long as they either meet the CO2 target or alternatively (in the event of non-compliance) purchase the necessary additional CO2 certificates. This means that companies must decide for themselves whether to buy or sell emission rights, for example, or to what extent they want to modernize their production.

There are many different decisions and trade-offs to be made in order to both effectively protect the climate and keep your own company competitive. Find out by deciding for yourself as a manager.

Do you know? Emissions trading

You think you know everything there is to know about emissions trading? Are you sure? Test your knowledge and choose the right statement. All correct answers are listed step by step and form a summary.

The energy mix in Germany in 1990 and 2020

In recent decades, the energy market in Germany has changed significantly, and in 2011 it was decided to phase out nuclear power due to the dangers and consequential costs of nuclear energy. At the same time, the expansion of renewable energy sources such as wind, solar and biomass was promoted. In Germany, the term "energy transition" has become established for this purpose. It describes the transition from CO2-intensive energy production using fossil fuels to an energy supply based primarily on renewable energies. The graph shows the energy production in regular operation.

An instrument beyond the social market economy: How does the Renewable Energy Sources Act (EEG) work?

The Renewable Energy Sources Act, or EEG for short, which came into force in 2000, is a key building block for the energy transition in Germany. The Renewable Energy Sources Act regulates the preferential feed-in of electricity from renewable sources into the electricity grid and guarantees their producers fixed feed-in tariffs. While the Renewable Energy Sources Act (EEG) resulted in an expansion of renewable energies, its economic and ecological efficiency is still controversially discussed today.

Is the price too high? Costs of the energy transition 

The aim of the Renewable Energy Sources Act is to convert a large part of Germany's energy supply to renewable energies. To achieve this, this law creates incentives for electricity production from renewable energies. For example, operators of photovoltaic and wind power plants receive a minimum remuneration (fixed minimum price) for the electricity they generate and feed into the power grid.

The amount of the remuneration depends on the size of the plant and the technology. It is usually guaranteed for 20 years. The crux of the matter is that the remuneration is often many times higher than the price paid for electricity on the open market. However, the electricity grid operators have to sell the electricity at the lower market price. To compensate for this, they received the so-called EEG levy until the summer of 2022. This was first abolished permanently with a relief package and then with the EEG 2023. This relieves the burden on consumers. The costs incurred will be offset by the special fund "Climate and Transformation Fund". 

The development of the EEG surcharge from 2000 to 2020 is presented below.

The energy transition in Europe

It is not only in Germany that a transition to a low-CO2 and sustainable energy supply is taking place. The individual countries have developed very different strategies for how they want to shape the energy transition. Often, natural conditions or a different social and political attitude towards the use of nuclear energy play an important role here.

Do you know? The Energy Transition and the Renewable Energy Sources Act

You think you know everything there is to know about the energy transition and the EEG? Are you sure? Test your knowledge and choose the right statement. All correct answers are listed step by step and form a summary.