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Emissions come at a price

How can levies on carbon emissions from fossil fuels be imposed in a way that is socially just and climate-friendly? This question is being addressed by a current research project on carbon pricing. The project also examines the impact a carbon price might have on the economy and society.

The fate of any social transformation fundamentally depends on its protagonists. This is especially true of the energy transition, which is not merely a shift from fossil-based to renewable sources for electricity, heat or fuels. It is a gigantic project that has a visible impact on the daily lives of each and every one of us – whether it’s the solar panels on your roof, the electric car in your garage, the energy-efficient fridge in your kitchen or the wind turbine behind your backyard. The energy transition is happening everywhere around us. If it is to be successful, public acceptance and support is of the essence.

The closer the interconnections between the electricity, heat and transport sectors become as a result of the energy transition, the more important it will be to ensure that energy prices are just, socially acceptable and climate-friendly. This especially applies with a view to reducing the carbon footprints of individuals, societies and economies.

While wind turbines and solar modules are conspicuous symbols of the energy transition, the lynchpin of this transformation is an invisible gas – carbon dioxide (CO₂). It is (and has always been) released into the atmosphere as a result of natural processes – by plants or animals, for example. Since the industrial revolution, human activity has greatly contributed to carbon emissions and, as a result, climate change. The gas is accumulating in Earth’s atmosphere in ever-increasing quantities – a lot of it is released from the burning of fossil fuels. Increasing levels of carbon dioxide mean that Earth’s heat is trapped in the atmosphere instead of escaping to space. This leads to climate change, with adverse effects on the planet’s ecosystems. Also, the frequency of extreme weather events increases.

How can a carbon price help?

One possible way of mitigating climate change and reducing carbon dioxide levels in Earth’s atmosphere is to charge a price for carbon emissions resulting from the burning of fossil sources of energy. Within the framework of its Climate Action Programme, the Federal Government has therefore introduced a nationwide levy per tonne of CO₂ for companies selling fuel oil, natural gas, petrol or diesel. As of 2021, fixed prices apply for emissions allowances. From 2026, however, there will be a national emissions trading system. These mechanisms are particularly targeted at heat generation in buildings and the transport sector. In addition to several European neighbours, Australia, Canada, Mexico and South Africa have already introduced similar measures.

What effects does the carbon price have?

But exactly how much should be charged for carbon emissions in order for the system to be effective, socially just and acceptable? What short and long-term effects does a carbon price have on individual households and the economy as a whole? How can fears of excessive economic burdens be countered? What are the most promising pricing schemes and concepts for redistributing the revenues? These questions are being explored by a team of researchers working for the 'CO₂ Price Project' (in German only). The idea behind the project is, among other things, to promote public acceptance of the concept of carbon pricing.

The researchers are using a cross-disciplinary approach in order to obtain a comprehensive picture of all important aspects. The methods used include interviews with experts and stakeholders, system analyses (simulation and optimisation models) and analyses for the purpose of assessing the risks and opportunities, weaknesses and strengths of the various carbon pricing models. Currently, the researchers are preparing a survey with around 8,000 participants. Another goal of the project is to develop a tool that makes it possible to calculate the concrete effects of a carbon price on individual households. The team thus hopes to draw up a concept for a carbon pricing model that will convince as many stakeholders as possible.

The Federal Ministry for Economic Affairs and Energy has allocated funds worth some €1.5 million to support the work conducted under the ‘Energy Transition and Society’ research agenda of the 7th Energy Research Programme.