IZW president on the energy transition: "Losses of prosperity are no longer a theoretical danger"

Maurice Forgeng, Epoch Times

In brief:

• With the energy transition, genuine parallel worlds have emerged between politics and business, according to IZW president Andrea Thoma-Böck.
• She warns that costs and risks could spiral out of control, as with Stuttgart 21.
• Without adequate comparisons and offsetting calculations, no break-even point can be determined.
• Thoma-Böck also expresses doubts about the overall financing potential.

Germany’s energy transition directly affects the economy. Rebuilding nothing less than the entire electricity infrastructure while it is in operation is a mammoth undertaking. The costs involved are accordingly high, both to date and in the years ahead.

In the long term, politicians promise cost savings. At present, however, business is mainly feeling the pressure of high energy prices and often restrictive emissions requirements. This is increasingly leading to a dynamic of German industry relocating abroad.

The Initiative Zukunft Wirtschaft Deutschland (IZW, Initiative for the Future of the German Economy) campaigns for a future-proof economy in this country and at the same time wants to build a bridge to politics. In the interview, IZW president Andrea Thoma-Böck explains how this is supposed to work – and how to put the costs of the energy transition, running into the trillions, into perspective.

Ms Thoma-Böck, a few days ago a Prognos study put the cost of achieving climate neutrality in Germany by 2045 at around 6 trillion euros. Another study from a good year ago spoke of up to 5.4 trillion euros for the energy transition alone by 2049. Do you consider these figures realistic?

All I can do is quote the energy economist Professor Manuel Frondel of the RWI: “I consider six trillion euros to be more of a lower limit.” That is exactly how I see it. We have been building airports, railway stations and tunnels for decades – and yet costs and schedules still spiral out of control. Stuttgart 21 was budgeted at around 4.5 billion euros as a core project in 2009. Including related infrastructure projects, we are now talking about roughly 25 billion euros, albeit with an expanded scope. And we want to calculate the reconstruction of our entire energy supply reliably through to 2045?

This is about far more than wind turbines and solar modules. Generation and consumption must be balanced in the power grid at all times, and frequency and voltage kept stable. Storage systems, inverters, lines and reserve power plants must interlock reliably. Installed capacity is a long way from firm capacity. What does this interplay cost over decades, including maintenance, replacement investment and system backup? While we are still building, replacement is already beginning. And what does it cost if industrial companies are increasingly to align their production with electricity supply?

Then there is the competition for raw materials. Across the world, power grids, battery storage and data centres are being built. Demand for copper is growing. UBS has warned of shortages, and the International Energy Agency expects a possible copper supply gap of around a quarter by 2035. New mines do not appear overnight. A considerable share of the value added in solar modules, batteries and components also arises outside Germany. Material prices, supply chains and geopolitical risks can hardly be predicted to the euro through to 2045.

Prognos puts the investment requirement at 5.7 to 6.4 trillion euros, but examines neither the full macroeconomic costs nor the effects on growth and employment. How the investments are actually to be financed also remains open. I therefore expect considerable cost increases. Calculating a figure for the investment requirement is one thing. Whether this plan can be realised technically, in terms of timing and economically is an entirely different question.

The Scientific Services of the Bundestag even point to cost estimates of up to 13.3 trillion euros by 2045. The federal government itself, by contrast, does not produce its own overall cost calculation.

All the more astonishing that to this day there is no holistic, technology-neutral master plan with a robust overall cost calculation and independent monitoring. This is a failing the IZW has criticised since its founding. What would be a matter of course for any major investment project is missing, of all places, in the rebuilding of our energy supply. How are we supposed to recognise in good time when costs and risks are spiralling out of control?

It is said that the energy transition ultimately saves more than it costs. Reduced investment in fossil fuels, less damage from climate-related natural disasters and falling healthcare costs are supposed to make this possible. When will the break-even point be reached? When will the energy transition pay off?

I cannot name a credible break-even point as long as we do not transparently set out what CO₂ savings are actually achieved over the entire life cycle and what each further tonne avoided costs us. After all, raw material extraction, manufacturing, transport and disposal also cause emissions, often outside Germany. The Technical University of Munich shows, with an analysis of 19 studies and 47 scenarios, that electric cars have on average 41 per cent lower life-cycle emissions than combustion-engine cars. That is an advantage, but not emission-free, as was always propagated before.

Germany has already reduced its greenhouse gas emissions by more than 48 per cent since 1990. Further savings lead us increasingly into technically difficult and costly areas. Between 2020 and 2025 we invested around 35 billion euros in new wind turbines and increased installed capacity by about 25 per cent. Even so, annual wind power generation in 2025 was almost at the 2020 level. Billions in investment, set against hardly any additional yield in this year-on-year comparison.

How much do we want to spend in future on each further tonne of CO₂ avoided, and where does that still stand in a reasonable relationship to the benefit? With every further investment we must ask: how much additional CO₂ reduction do we actually achieve, and at what price?

Crude oil and natural gas are, moreover, not just fuels but feedstocks for countless products, from plastics and pharmaceuticals to cosmetics. In the German chemical industry alone, around 34 per cent of the energy sources used in 2024 were used as raw materials. Anyone who wants to replace these raw materials needs alternative carbon sources and processes, which in turn require energy, capital and infrastructure. If production moves abroad instead, we lose jobs, technological know-how and value chains. If the same goods are then produced abroad in a more emissions-intensive way, our national CO₂ balance improves without the global climate benefiting accordingly. What matters is not how much CO₂ we remove from our national balance, but how much we actually avoid worldwide.

Of course, saved fuel imports and avoided climate and health damage belong in the calculation. Global emissions, all additional costs and possible industrial losses must be set against them. A comprehensive comparison with other technology paths that could achieve the same emissions reduction more cheaply is also missing. Without this offsetting calculation, the claimed macroeconomic break-even is not a reliable figure.

Can Germany afford these costs, running into the trillions, at all? What does this mean for the country and for its people?

Even in the economically strong years between 2009 and 2019, when tax revenues were gushing and credit was exceptionally cheap, an investment programme worth trillions would have been an enormous challenge. Today Germany is once again in the debate as a possible “sick man of Europe”, as the “Economist” already asked.

At the same time, we have an enormous backlog of repairs: according to the Federal Court of Audit, around 5,000 sections of motorway bridges alone urgently need modernising. On top of that come roads, railways, schools and local infrastructure. The energy transition comes on top of all this.

The decisive question is surely: who is supposed to earn these trillions if at the same time we weaken the industrial base that is meant to finance them?

We must also talk about the people who are supposed to bear this burden. Our economy has been stagnating for years, the baby boomers are retiring, and the pressure on social security funds and public budgets is growing. By 2040, around 13.3 million of today’s members of the workforce will reach retirement age. At the same time, the federal government’s annual interest payments are set to more than double to over 80 billion euros by 2030. If costs are financed through subsidies rather than electricity prices, they do not disappear. They merely change the letterhead: from the electricity customer to the taxpayer, from today’s households to future generations. Today’s debts are tomorrow’s interest burdens. And every further financing need competes with education, health, defence and the renovation of our country.

While the world enters a new competition for affordable, secure energy through artificial intelligence, digitalisation and electrification, we are tying up enormous resources in a politically dictated, technologically narrowed special path. This capital may be missing for research, modern production facilities and other investments. At the same time, we are already losing industrial value creation, investment and with them economic prospects for the future. These losses of prosperity are no longer a theoretical danger. And with them, public acceptance is also dwindling.

Yet the credible prospect of a permanently secure, affordable energy supply alone would be one of the strongest investment stimuli for our location. After all, companies only invest if they can plan for the long term. Whoever solves the energy question creates prosperity.

We have made the bill without the host. And that host is our national economy. It must finance the transformation and at the same time create the conditions for coming generations to be able to preserve their prosperity.

An energy transition must be measured by its economic viability, not by the wishful thinking of a political castle in the air that is supposed to be finished by 2045, whatever the cost.

A transformation is only successful if business and society experience it and survive it. Whether that will succeed on our current path, I consider more than doubtful.

Thank you very much for the interview!

The interview was conducted by Maurice Forgeng.

About the person:

Andrea Thoma-Böck comes from an entrepreneurial family that has borne responsibility for an industrial company for generations. From her own entrepreneurial experience she knows the growing gulf between politics and business. In doing so, she also holds business to account: “We were far too quiet for far too long.”

Out of this concern she founded the Initiative Zukunft Wirtschaft Deutschland (IZW) in November 2023. The initiative combines entrepreneurial practice with scientific expertise, analyses political decisions and their economic consequences, and sees itself as an interpreter in both directions between business, politics and society.

For its work on energy policy, the IZW has an interdisciplinary team of independent experts from different areas of the energy industry. Together they regularly develop and publish well-founded analyses, studies and statements on energy policy.

The IZW is independent, non-partisan and privately funded. Its goal is to give small and medium-sized businesses (the Mittelstand) their place back at the table where decisions about their future are made. “No longer about us, but with us.”

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This article first appeared in German on Epoch Times – with kind permission of Maurice Forgeng.
Cover image: Couleur / Pixabay