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Climate action as a driver of the economy

Investments in climate action can have a positive impact on overall economic development. This is a finding of a recent report by the GWS/Prognos research consortium, which looked at changes in climate policy over the last three years.

Extreme weather events and peak temperatures both occurred with greater frequency in the last years, with a detrimental impact on health, infrastructure and overall economic development – and Germany is no exception to this. Measures including investments in renewables and a higher carbon price are to accelerate the decarbonisation of industry and slow down climate change. These steps are designed not only to reduce carbon emissions, but also to have an impact on overall economic development, by rendering fossil fuels less attractive and promoting renewables instead.

^{Viewing the combined impact of climate action, climate adjustment and climate change}

The Federal Ministry for Economic Affairs and Climate Action has commissioned a research report to better understand the impact of climate change and related policy measures on economic development. By looking at the combined impact of climate action, climate adjustment and climate change, this research is to provide new insights for the Federal Government’s macroeconomic projections. An interim report compiled by the Prognos/GWs research consortium shows the potential impact of the climate policies adopted in the past three years up to 2030. Examples of relevant political measures are the EU Fit for 55 climate package and the Buildings Energy Act. The detailed findings can be found in Economic Policy Highlights (edition 04/2024) and in the original report.

^{Report finds positive effect on economic development}

The amount of investments incentivised by changes made to the political framework since 2020 is estimated at €40 billion to €55 billion. By 2030, these investments might raise Germany’s GDP by around 1% in 2030 – and the higher CO₂ price is not expected to pose a significant impediment to GDP growth. This means that investments in climate action foster positive economic development. The Federal Ministry for Economic Affairs and Climate Action expects that additional investments and the fast expansion of renewables will contribute to economic stability. What is needed are reliable political signals regarding decarbonisation, such as the EU agreement on CO₂ pricing, so that investments in fossil technologies can be avoided. While stricter emission targets could slow down growth, this can be partly compensated by technological progress.