Ifo boss Fuest in an interview – “In the end we will still be a coal republic”

The guest list for the opening alone shows the hopes for the LNG terminal in Wilhelmshaven, the first of its kind in Germany. Chancellor Olaf Scholz (SPD), Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP): The entire traffic light government was represented when the starting signal was given.

So everything good? Not at all. Many economists do not share the political euphoria. Ifo boss Clemens Fuest, for example, clearly criticizes the federal government’s energy policy. He warns of the new “switch-off enthusiasm”: get out of nuclear power and coal, even though gas is expensive and renewables are far from being developed. “When you buy a new refrigerator, don’t throw the old one away until the new one has arrived,” he says.

Together with his predecessor Hans-Werner Sinn and representatives of the economy such as Roland Berger and Peter-Alexander Wacker, Fuest has now presented a five-point plan for energy policy. A clear assignment for Scholz, Habeck and Co. The paper is full of proposals that are tricky for politicians: longer lifetimes for nuclear power, fracking in Germany, new pipelines…

FOCUS: Mr. Fuest, the first German LNG terminal has opened in Wilhelmshaven. Does that save us over the winter?

Clemens Fuest: In the short term, liquefied gas is the only way to replace gas from Russia – even if LNG is of course expensive and pollutes the environment. We simply lack the alternatives. In the future, we could indeed produce more gas again in Germany or in the neighboring countries. But for that we need political decisions and the corresponding infrastructure. Both last. That’s why we have no choice but to import liquid gas.

“We have to assume that for the foreseeable future we could be paying about twice as much as the US for gas”

What are the consequences for Germany?

Foot: We have to assume that we could be paying about twice as much as the US for gas for the foreseeable future. This has enormous consequences for our competitiveness and will cost us prosperity.

Industry is hit by high energy costs. Are we threatened by deindustrialization?

Foot: There is actually a lot to be said for that. There are already parts of the energy-intensive production that are no longer competitive due to the high energy prices in this country. This applies, for example, to the production of ammonia, which is used for fertilizer or the diesel additive AdBlue. BASF, Germany’s largest chemical group, has already announced that it will relocate parts of its production to China.

How many jobs will that cost us?

Foot: That depends on whether we succeed in the structural change. If we can create jobs in low-energy industries to the same extent, that’s not a problem. But it is far from certain that we will succeed. Even before the Ukraine war, German industry had shrunk more than in other countries in the euro zone. We must do everything we can to ensure that this structural change succeeds.

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“It would only be rational to create the framework for fracking now”

Germany wants to expand renewables quickly, out of coal and nuclear power. There should be more modern gas-fired power plants for the transition. Is that still realistic?

Foot: You really have to ask yourself whether this plan can still work. I see a crucial problem here: Because gas is scarce and expensive, there are currently hardly any investors who would be willing to invest in the construction of new gas-fired power plants – not even those that can later be converted to hydrogen. That simply doesn’t pay off at the moment due to the high import prices for gas and the uncertainty about the other framework conditions.

They are also in favor of building new gas pipelines – for example to Norway or Great Britain. Germany wants to do without gas in the long term…

Foot: There is a wish, but we have to be realistic. Many in Germany have not yet understood what kind of situation we are in right now. In the last 30 years we have just managed to increase the share of renewables in primary energy consumption from almost zero to 15 percent. But now we should be able to replace 85 percent of the demand in 20 years. That’s a gigantic task. To do without gas altogether, which is one of the most climate-friendly fossil fuels, would be fatal. That’s why I think it’s right to build new gas pipelines.

Would it be an alternative to let the three German nuclear power plants run beyond April?

Foot: In my opinion, it is a mistake to shut down the nuclear power plants that are in operation in the current situation. Of course, you have to assess the risks of nuclear energy politically. But nuclear power plants in Germany are considered extremely safe. The option to keep them going is like insurance. And that is worth a lot in uncertain times like today. At the same time, nuclear power can at best alleviate our problems, not solve them. The capacity of the three nuclear power plants is much too small for that. Nuclear power can therefore only be one of several building blocks.

“If we fall back on our own mineral resources, it’s a lot cheaper”

Would greater gas production in Germany, i.e. fracking, be another building block?

Foot: Yes, in any case. The environmental risks associated with fracking are much lower today than they were a few decades ago. It would therefore only be rational to create the framework conditions for this now. Especially since we have to prepare well for this. We have to involve the public in this. And it is possible that compensation will also have to be paid to those who live in the areas of gas production. All this takes time, so it would be right to start now.

Fracking would also keep more money in the country. We are currently paying enormous sums abroad to buy liquid gas from there…

Foot: Absolutely. If we fall back on our own mineral resources, it is much cheaper. Domestic fracking keeps value creation in the country. There is also an environmental aspect to this. Of course, fracking is harmful to the environment – ​​but from a global perspective, it makes little difference where the damage occurs. The climate impact is even much lower if we extract the gas ourselves instead of converting it and sending it across the world’s oceans.

And what about coal?

Foot: If we don’t succeed in building new gas-fired power plants and expanding alternative energies such as wind and solar energy quickly enough, we will inevitably have to turn on more coal-fired power plants. In terms of climate policy, that would be a disaster – financially too, by the way. If we don’t get CO2 emissions down, we will have to pay heavy fines.

But the government wants to get out of coal after all…

Foot: According to the coalition agreement, the government wants to shut down coal-fired power plants by 2030 if possible. However, it is to be feared that this will not be possible. Then Germany will end up becoming a coal republic, although nobody really wants that.

“If we are going to keep the coal-fired power plants running, we should rely on carbon capture”

One reason is that we will need a lot more electricity in the future. Can the power grid be expanded quickly enough?

Foot: With our current power grid, for example, we can only increase the number of e-cars to a very limited extent. The need to expand the power grid is therefore enormous, and it is questionable whether the expansion will succeed quickly enough. So I’m afraid that we won’t be able to switch to alternative energies as quickly as politicians are currently planning because of the lack of grids alone.

However, the government wants to accelerate the expansion of the networks considerably.

Foot: That’s right. It will be possible to speed up approvals, but there are limits to this. The population must be involved. It will only succeed if she stands behind the conversion of the energy system. But that takes time. To make matters worse, there are still delivery problems for important parts. And the shortage of skilled workers will also slow down the expansion of the networks. It is therefore possible that the government’s ambitious schedule cannot be met.

If you could write three items on the federal government’s to-do list, what would they be?

Foot: At the top of the list is a new energy policy strategy as the government adapts to the new reality. Investors need the certainty that we will continue to have a secure and competitive energy supply in Germany in the future.

Number two for me is new regulation of the electricity market: in the future, many of us will be electricity producers and consumers at the same time. It makes sense, for example, that e-cars not only draw electricity from the grid, but can also feed it in at certain times. But that only works if we create a kind of platform economy in the energy system.

And number three?

Foot: We need more technology openness in Germany. If we let the coal-fired power plants continue to run, we should rely on carbon capture – i.e. separating and storing the emitted CO2. If we move forward with this, we can sell this technology worldwide and thus also do something for the climate in other countries that will continue to rely on coal-fired power plants for a long time to come.