The transformation towards a climate-neutral economy poses major challenges, particularly for energy-intensive companies in Germany. In order to decarbonize industry, it is important to replace fossil fuels with energy sources from renewable sources. This requires extensive investments. The transformation is made more difficult by the current macroeconomic environment with high interest rates and sharp increases in energy prices. Since competitors outside the EU, especially in the USA, are exposed to much lower energy price increases and a significant price difference between Europe and other parts of the world is to be expected in the medium to long term, it is feared that energy-intensive companies competing internationally will at least Parts of their production could be relocated and this could lead to deindustrialization in Germany. Against this background, politicians should ensure investment-friendly conditions, expand the energy supply through the faster expansion of renewable energies and the networks for electricity and hydrogen, and create a transparent market for nationally produced and imported hydrogen and its derivatives. In addition, new trade, raw material and energy supply contracts should be concluded in order to diversify sources of supply.
There are two options available to convert industrial processes and technologies to renewable energies: direct electrification, which is usually cheaper and technically simpler, and the use of green hydrogen and its derivatives such as ammonia, methanol or e-fuels. While direct electrification is largely relied upon for heating buildings using heat pumps and electromobility, so-called sector coupling via hydrogen plays an important role in the decarbonization of energy-intensive industries. However, many industrial applications can also be electrified directly.
Overall, the demand for electricity is significantly higher than today. In order to have the necessary supply of green electricity available in Germany by 2030, the expansion of renewable energies would have to take place four times as quickly in the next eight years as in the past eight years. Grid expansion would also have to keep pace with the expansion of renewables. In order to achieve this, planning and approval procedures must be further accelerated and bureaucracy reduced. In addition, the necessary space must be provided on site. This would also create the conditions for electricity prices to fall in the future.
In order to convert industry in Germany to climate-neutral production, large amounts of green hydrogen are necessary. The amount of electricity required for this will far exceed the manufacturing capacities in Germany. In addition, given the climatic conditions and limited space availability, the costs for electricity and hydrogen production in Germany will also be higher in the long term than in other parts of the world. This will bring about structural changes in the industry, because parts of the industrial value chains, such as B. the production of energy-intensive intermediate products such as ammonia or methanol will (have to) be relocated abroad because the production costs there are significantly lower.
A large part of the required hydrogen or its derivatives must be imported, estimated to be between 30 and 67 terawatt hours in 2030. In order not to become (renewed) dependent on imports of energy sources, it is crucial to develop diversified international sources of supply. This applies not only to hydrogen, but also to critical raw materials, e.g. B. needed for the expansion of renewable energies or e-mobility. To ensure a rapid market ramp-up of the hydrogen economy, all available technologies for hydrogen production should initially be used, e.g. B. also blue hydrogen, which is obtained based on gas with CO2 capture. This is the only way to achieve economies of scale in the short term. In the long term, however, the entire value chain must be converted to greenhouse gas-neutral energy sources in order to be able to meet national and international climate goals.
The challenges that need to be overcome are enormous and cannot be addressed at the national level alone. Together with its European partners, Germany should therefore create the necessary framework conditions to promote the import of hydrogen. Joint procurement can also pay off through an improved negotiating position and thus more favorable conditions. In order to ensure price transparency and prevent the emergence of monopolies, market economy instruments such as two-sided auctions should be used. This should be accompanied by the development of new sources of supply, in particular the conclusion of new trade and raw material contracts with international partners, e.g. B. in South America, Africa or Australia.
The green transformation presents the industry with major challenges and will lead to structural change. This should be actively supported so that long-term competitive industries can remain in Germany and contribute to prosperity. Instead of supporting individual companies, politicians should increase incentives for reducing CO2 emissions and producing green energy through strong price signals, promote the development of international hydrogen (derivatives) markets and expand international cooperation.
A notice: This policy brief was created on the basis of the ECONWATCH meeting “Energy crisis and transformation: Is Germany as an industrial location in danger?” with Prof. Dr. Veronika Grimm (Friedrich Alexander University Erlangen-Nuremberg and Advisory Council).