A More Competitive Energiewende Would Increase German Jobs and Economic Competitiveness with Limited Impact to Emissions Levels, IHS Study Finds

Reengineering the Energiewende—supported by shale gas—would maintain Germany's path to a low carbon future while generating 1 million more jobs, €138 billion in additional GDP and €847 more disposable income per person per year by 2040

FRANKFURT, Germany--Germany's current energy policy of rapid renewables deployment under the Energiewende has resulted in rapidly increasing energy costs that will make Germany less competitive in the world economy, says a new study by IHS, the leading global source of critical information, analytics and insight. At the same time, the study concludes, greenhouse gas emissions (GHG) have increased.

The study says that a rebalanced approach could return the Energiewende to its original goal of providing a competitive transition to a low-carbon economy while generating substantial benefits to Germany's gross domestic product (GDP), jobs, income, trade position and government revenues.

The IHS study, entitled "A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World," examines the links among Germany's energy costs, competitiveness and economic performance. The study compares the effects of remaining on the current course of the Energiewende with an alternative, lower-cost power system focused on mature renewables (such as onshore wind and solar) and a greater role for domestically-produced natural gas.

The economic benefits of a lower-cost power system compared to the Energiewende's current course would include:

*Gross Domestic Product: A GDP increase of nearly €28 billion, or 0.9 percent, in 2020, and €85 billion, or 2.5 percent, by 2025. The impact on GDP is even larger in the longer term, reaching €138 billion, or 3.4 percent, by 2040.

*Employment: A net overall employment increase of 207,000, or 0.5 percent, in 2020, and 559,000, or 1.3 percent, by 2025. The economy would support nearly 1 million additional jobs by 2040. This overall job creation would more than offset the slower pace of employment growth in the "green" industries.

*Disposable Income: Average disposable income increases by €123 per person in 2020 and by €847 per person in 2040 as the economic benefits resulting from moving towards a more competitive Energiewende extend to virtually all the citizens of Germany.

*Government Revenues: Nearly €40 billion in additional annual revenues by 2030, rising to €68 billion by 2040 as a result of increases in overall economic activity and royalties from gas production.

*Manufacturing Exports: Net exports for the manufacturing sector will rise by €36 billion in 2030 and €63 billion by 2040—a 20 percent increase — as lower energy prices support German manufacturing's competitiveness.

"Germany's current path of increasingly high-cost energy will make the country less competitive in the world economy, penalize Germany in terms of jobs and industrial investment, and impose a significant cost on the overall economy and household income," said IHS Vice Chairman and Pulitzer Prize-winning author, Daniel Yergin. "But there is an alternative path that can get the Energiewende back on the course originally intended, which will allow Germany to retain much of the decarbonization benefit created by adding renewables while reducing overall costs."

The study notes that, while Germany has experienced increasingly high energy costs due to the rapid pace of renewables deployment, its GHG emissions have risen in recent years due to a greater reliance on coal-fired power, the phasing out of nuclear power and slow progress on energy efficiency. As a result, power sector emissions are moving out of line with economy-wide CO2 reduction targets.

At the same time, electricity prices—which were already high by international standards and have been increasing at a greater rate than in competing markets—have been responsible for €52 billion in net export losses over the past five years and will make Germany's highly integrated industrial sector less competitive in the future, with negative impacts on the wider economy.

"Germany's supply chains and industry clusters are some of the most sophisticated in the world and connect energy-intensive and non-energy-intensive businesses alike," said Ralf Wiegert, Director, IHS Economics. "To argue that industrial policy should focus on the ‘greener,' less energy-intensive industries and accept or even welcome the exit of energy-intensive industries from Germany, misses the point. Policy that places Germany's energy-intensive industry at a disadvantage to global peers will have broad implications across the entire domestic industrial landscape and Germany's overall economy."

The study notes that North America has become a much more competitive location for manufacturing and exporting due to two factors—Germany's high electricity prices and the shale gas revolution that has reduced natural gas prices in the United States to one-third the level of Germany.

A more competitive Energiewende would reduce the cumulative cost of the power system by €125 billion from 2014-2040, mostly through a reduction in offshore wind deployment. It would include an increased role for domestic natural gas—which produces half the carbon dioxide (CO2) emissions of coal—to mitigate increases in GHG emissions. The benefits of reduced capital spending would be partially offset by increased spending on fuel and emissions.

Greenhouse gas emissions would remain at levels near that of the current policy framework, with a net increase of around 10 percent over the 2014 to 2040 time period. Without an increased role for domestic natural gas, GHG emissions from a lower-cost power system would be nearly 20 percent higher, the study says.

Development of local gas supply in Germany and elsewhere in the European Union would boost energy security and reduce European gas prices by as much as 20 percent, the study says. Lower priced gas would make lower-carbon, gas-fired power generation more economic than coal.

IHS estimates that more than 20 billion cubic meters (Bcm) per year of shale gas production is possible in Germany by 2030, with production peaking at more than 25 Bcm by mid-decade. Germany's resources could support domestic natural gas production through the 2030s that would be equivalent to more than 35 percent of current German gas consumption.

Total shale gas production in the 28 European Union countries could exceed 70 Bcm in 2030 and rise to nearly 90 Bcm in 2040, a similar level to current Norwegian pipeline exports to the European Union and more than two-thirds of Russian exports to the European Union last year, the study finds.

Shale gas development would also be a key contributor to the increased economic benefits identified in the study, accounting for about 77 percent of the increase in GDP in 2020 and nearly 44 percent of the GDP increase in 2040.

The study also examines the role of rebates from the Erneuerbare Energien Gesetz (EEG) — the Renewable Energy Act — surcharge that have partially shielded energy-intensive German industry from the rising cost of renewables support. The study finds that maintaining the existing EEG rebates for energy-intensive customers is essential to recognizing the economic benefits of a more competitive Energiewende.

The study finds that if the rebates were phased out, the impact would be immediate and significant. Customers that benefit from the maximum EEG rebates could see electricity prices jump by more than 65 percent in 2014. German GDP would be nearly 5 percent lower by 2020, 1.1 million jobs—half of that in industry—would be lost, and real disposable income for residential customers would decrease by more than €500 per year.

About The Report

A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World is a study examining German competitiveness in a world of changed shale gas development. The study considers alternative paths to transitioning to a lower carbon energy policy, the role for natural gas in achieve these objectives, and quantifies the effects on German global competitiveness. This research was supported by the Verband der Chemischen Industrie (VCI). Additional support came from Bundesverband der Deutschen Industrie (BDI), Wirtschaftsverband Erdöl- und Erdgasgewinnung, BASF, Bayer, BP, Central European Petroleum, Dow, Evonik, ExxonMobil, Linde, Total, Vestolit, and Wacker. IHS is exclusively responsible for all analysis and content.

Download A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World at: www.ihs.com/GCSv2

About IHS (www.ihs.com)

IHS Inc. (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's global economic and business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make decisions and develop strategies. IHS has been in business since 1959 and is committed to sustainable, profitable growth. With global headquarters in Denver, Colorado, USA and German offices in Frankfurt, Dusseldorf, and Munich, IHS currently employs approximately 8,100 people in 31 countries around the world. IHS has acquired more than 60 companies in the last decade including companies with world-leading expertise in macroeconomics and energy.

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