Economic policy takes time to be effective. What seems simple in theory can have far-reaching consequences in practice. When Federal Minister of Economics Ludwig Erhard surprisingly published the prices after the 1948 monetary reform, almost all economic data in West Germany deteriorated. Inflation rose, as did unemployment, which is why the German Federation of Trade Unions called for a general strike that same year. The road to the economic miracle did not begin until after 1950. Economics students come to know this time problem in general terms as the “J-curve”. A classic example is a country that wants to reduce its current account deficit. If the government does the right thing and devalues the currency, the deficit will increase even more because of the exchange rate alone before it can go down. The country’s trade figures then look like a “J” in the graph.
The principle of the J-curve can also be applied to many other fields. For example on climate policy. In the meantime, all parties represented in the Bundestag except the AfD have recognized the problem and want to do more to protect the global climate as quickly as possible. Politicians from the Greens, the Union, the SPD and the FDP make it clear that it will not be easy to do without fossil fuels, but they explicitly or implicitly promise that climate policy does not necessarily mean sacrificing prosperity. Climate protection guarantees “lasting jobs and therefore a good life for the population”, according to the Greens’ program. Ursula von der Leyen, President of the European Commission, said: “We want to leave the next generation with a healthy planet as well as good jobs and growth that does not harm our nature.”
But is it possible – to make the economy of an industrialized country climate neutral and at the same time create prosperity and growth? Saying goodbye to coal, oil and gas is expensive in the beginning; Production lines and entire factories are becoming obsolete and must be depreciated. Jobs are disappearing in the automotive industry, simply because electric motors can be produced with less effort than combustion engines. It’s plausible to assume that new and good jobs will be created in the low-carbon economy and then people will be materially good as well – especially if you take into account what the earth would look like, humanity should continue as before. But above all, the transition to a climate neutral economy will require sacrifices and sacrifices. Otherwise, the whole world would long ago be climate neutral.
Influential French economist Jean Pisani-Ferry examined these links between today’s climate policy and the possible prosperity of tomorrow. In a remarkable essay for the American Peterson Institute for International Economics (PIIE), he tries to estimate what it will cost to decarbonize the economy and how society should cope with it. Pisani-Ferry – he was a member of the electoral campaign team of French President Emmanuel Macron – is particularly interested in the effects of a CO₂ tax on the economy as a whole. These taxes on carbon dioxide emissions are considered the most effective instrument of climate policy. The higher this tax, the more expensive it becomes to burn coal, oil or gas – good for the climate, but initially a burden on the economy as a whole.
The oil shock triggered a severe global recession
Pisani-Ferry compares what the economy is facing with a climate policy consistent with the oil crisis of 1973 and 1974. At that time, the oil-producing countries of the Middle East abruptly cut their exports, which made the raw material, which had been very cheap until then, 70% more expensive in a short time. According to Pisani-Ferry, this was equivalent to a negative supply shock of 3.6% of global economic output. This shock triggered a severe recession around the world. For the climate policy which is at stake today, the economist arrives at comparable figures in a calculation model: if a ton of CO₂ were taxed at 75 dollars in the world, the economy would be exposed to a shock of 2 , 7% of the world product. If the price were $ 100 per tonne, it would be 4.1%. It wouldn’t even be particularly ambitious. In the opinion of the Federal Environment Agency, a real piloting effect does not start until 100 dollars. Currently, a tonne of CO₂ is billed for an international average of ten dollars. In Germany, a CO₂ tax of 25 euros per tonne on petrol, diesel, fuel oil and gas has been in effect since the beginning of this year.
These numbers do not mean that everything will soon be like it was in 1974. One important difference: at that time, billions of oil ended up in the bank accounts of sheikhs and other rich people, and the money was thus taken out of the business cycle. . On the other hand, the states concerned can decide for themselves the product of the CO₂ tax and use the funds for social compensations or for investments, for example. This is progress, but it does not solve the problem. The money that is now invested in renewables, railways and low-energy homes is no longer available for consumption. It will also be more difficult to return to balanced budgets after Corona. Distribution conflicts are therefore inevitable. Anyone who wants to win political majorities for a coherent climate policy must adapt to these conflicts.