FABIAN BRUNNER

CLIMATE

CHANGE

A Law Of Nature

The promise of the energy transition

and its failure in practice

1. edition 2022

Copyright © 2022 Dr. Fabian Brunner

Set, design & layout Markus Vahlefeld

Cover: stock-illustration-ID:498571115

sepio

Brünner Str. 8

04209 Leipzig

CONTENTS

Preface

I. Energy policy: the energy law framework

· Categories of energy policy measures

· The significance of regulation

· Excursion: carbon dioxide

· Regulatory tools

· International climate diplomacy

II. Energy markets: the energy policy framework

· Tools of European climate protection policy

· Concentration on carbon dioxide emissions and its

consequences for the German automobile industry

· Green finance and sustainability taxonomy

III. The energy industry: implementation

· Power grids and blackouts – the Achilles heel

· Europe wants to become sustainable

· The price of decarbonization

· The illusion of clean energy

· Affordable energy is essential for economic prosperity

IV. Alternative approaches

V. Conclusion

VI. End notes and bibliography

Preface

There is scarcely a topic that unites people as closely as the development of the climate in which we live. However, this is where the complexity of the topic already starts. Is there really ONE global climate or do we have several different climate zones throughout the world? What is the difference between weather and climate? How much change in the basic situation of the global climate can be considered to be a natural process? Currently, the phenomenon of global warming, frequently referred to as climate change, is among the top items on the political agenda in many countries of the Western world. Global climate change was a central topic for the first time at the G8 summit held in Heiligendamm, Germany in 2007.¹ The high degree of sensitivity with which average global temperature reacts to the smallest changes in atmospheric greenhouse gas concentrations is now defined as a central challenge in public discussions.

Anthropogenic emissions (i.e. emissions caused by human beings) are regarded as the cause of the increase in the atmospheric carbon dioxide concentration. In public discussion, the increase in the average global temperature of about one degree Celsius since the advent of industrialization and the perceptible rise in the atmospheric carbon dioxide concentration observed over the same period when comparing the pre-industrial age and the present day has become the key parameter in public discussions. In this context, the loss of the polar ice caps, the melting of glaciers, rising sea levels and an increase in the frequency of extreme weather events are often seen as visible signs of climate change. Many people in the Western world believe that temperature change must be limited to 2 degrees Celsius (or 1.5 degrees Celsius)² as the essential response of humanity to this situation. Frequently, the introduction of restrictive political measures is seen as indispensable in this context.

However, although there is widely accepted global agreement among the nations that excessive global warming would entail severe negative consequences for humanity and that appropriate action must be taken to prevent it, there is generally no clear international consensus³ on the questions arising directly in this context, for example questions as to the correct, appropriate reaction to climate change, responsible action or the handling of the resulting costs. On one hand, the various international climate protection agreements have created global awareness; on the other hand, the specific measures taken by individual nation states are very different from each other and range from the use of so-called renewable energies (it would be more appropriate to call them volatile energies) via research and development programs to directives and laws or even, in some cases, no reaction at all.⁴

Furthermore, even though the international treaties on climate change (such as the Kyoto Protocol or the Paris Accord) have been ratified by many countries, a large number of the signatories did not derive any consequences from ratification. In many cases, emissions were not effectively limited; infringements have rarely been punished. Furthermore, some countries with high anthropogenic emissions do not share the basic hypotheses of the climate accords and have therefore not adopted the limits stated in them. Even in countries which act in the spirit of the climate accords, the efforts undertaken are often scarcely sufficient to meet their voluntary undertakings. As a result, the trend of increasing global carbon dioxide emissions has continued unabated.

Nowadays, the climate protection efforts of politicians in the Western world often face conflicts that simply cannot be resolved. On one hand, we have the wishes of the general public, encouraged by politicians, for comprehensive climate protection and indeed protection of the basis of their existence. On the other hand, there are problems with acceptance among the general public as regards the affordability of energy and the security of energy supplies (the social and economic component). These aspects, which are mutually interdependent, cannot be optimized at the expense of the other aspect in each case and also offer little prospect of political credit. What politician can score with the topic of security of supply? The conflict between these two objectives always calls for decisions and the assignment of priorities to the primary objective to be pursued in each case.

The situation is exacerbated by the fact that questions concerning the climate call for interdisciplinary answers which are highly complex in some cases. Despite this complexity, the media and politicians nevertheless often react with highly simplified answers which do not do justice to the topic. It is therefore time for worldwide climate protection efforts to be revisited. This is the objective of this book. Germany can be considered a blueprint and is the ideal point of reference of this book. The country is embedded in the European context and has shown itself to be particularly committed to climate protection. No other country has embarked – under the heading of “energy transition” (Energiewende in German) – with such enthusiasm on such a comprehensive energy industry experiment with an open outcome for its own economy. Scarcely any other country is so convinced that its own approach is right as to use their exemplary character and the encouragement of imitation by other countries as a justification for its national climate protection measures.⁵

In 2021, climate protection, which can really only be effective at the global level ⁶ even came to be considered as a human right in Germany. In future, German citizens therefore have a constitutional right to climate protection. In the spring of 2021, Germany’s highest court issued a judgment complaining that the German government’s Climate Protection Act only stated targets for the reduction of emissions up to 2030 and did not state any requirements for the subsequent period. The failure to continue emission reduction targets from 2031 onwards was considered to be a violation of constitutional rights. In contrast, as regards the extremely far-reaching climate protection measures resulting from its judgment, which would impinge on the freedoms of German citizens, the court did not see any violation of constitutional rights.⁷ The Federal Constitutional Court has therefore adopted a political position on climate protection and has also shown the high priority of this topic for German society.

Moreover, the very broadly formulated judgment of the Federal Constitutional Court has given the German state comprehensive justification to initiate, or even the duty to initiate in the name of climate protection appropriate energy industry measures to achieve the temperature target stated in the Paris climate agreement (limiting global warming to less than 2 degrees Celsius). This judgment will therefore fundamentally restrict the leeway available to future German governments for shaping legislation, a new development in German history which has remained unique throughout the world to date. It is true that the judgment also refers to the leeway available for shaping legislation but it also basically creates a duty under the German constitution which can be enforced by litigation. The consequences for the country are currently unforeseeable. From a present-day perspective, it is both inefficient and ineffective to wish to lay down binding national annual carbon dioxide emission limits for future generations. The next few years will simply bring too many economic and technical changes and innovations for it to be possible to lay down binding limits of this type. There is even a risk that the judgment of the Federal Constitutional Court will prevent reached or at least seriously impede certain innovative development paths.

Quite apart from these considerations, the judgment by Germany’s highest court ignores the global character of global warming. In 2021, the German share in worldwide carbon dioxide emissions is less than 2 percent. China, the USA and India together reached about 50 percent. If Germany achieves the goals of the Paris climate agreement, this will therefore be of secondary importance for the global climate. However, if the development potential of future generations is to be determined to this extent and the freedoms enjoyed by citizens are to be restricted so severely, it will be essential for the citizens of a democracy or their elected representatives to be able to revisit objectives and to reach other conclusions on the measures to be taken and the priorities to be assigned in the light of new findings.

Furthermore, public discussions in Germany have largely ignored the price to be paid for this focus on climate protection. For example, it must be mentioned that electric power and the affordability of electric power are among the key competition factors for an industrial country and that the total cost of supplying electricity from renewable sources is especially high (at least in the present situation). Similarly, the rejection by an entire nation of conventional power generation using fossil fuels (coal, gas, nuclear fuel) of the type practiced throughout the world is an experiment which still has an open outcome, at least as regards security of supply. Furthermore, the changeover to energy supplies based solely on renewable energy sources for covering power demand will call for many times more generating capacity compared with conventional technology; land use for power generation will therefore also be considerably higher. Another factor to be considered is the possibility that the production, construction, operation, dismantling and disposal of wind turbines and solar panels will or at least may also have a negative impact on plants and animals.

It is certainly legitimate for a country to pursue the ideal of a decarbonized society but it should be made transparent that this goal is more than “just” climate protection and will cost considerably more than the famous ice cream cone mentioned by Jürgen Trittin, then German Environment Minister, on July 30, 2004: “Supporting renewable energies will still cost an average household just 1 euro a month - the price of an ice-cream cone.“⁸ This will be all the more important if the German energy transition becomes a European climate protection program, the “Green Deal”, especially as a result of German efforts. It is at least disingenuous to present the energy transition and the Green Deal as a highly promising way for the German economy or the European continent to achieve climate neutrality without sacrificing prosperity to any significant extent.⁹

The real stress test for the energy transition will be to meet the electric power demand of Germany or Europe reliably and in a cost-optimized way primarily from renewable sources, which has not been the case to date. The fossil power plants are still in operation. And the price tickets that have been announced are already beyond imagination, or at least the imagination of the author. For example, the EU Commission has announced, with reference to the European green deal, that one trillion euros will need to be invested to combat the climate crisis by 2030, corresponding to 100 billion euros per year.¹⁰ This is an amount that , a) will need to be earned, b) will not be available for other socially relevant tasks and c) is so large that it would definitely have called for a consensus within society. Considering the fact that affordable, reliable energy supplies are critical success factors for an industrial nation and that energy-intensive industries will be forced by high electricity costs to relocate to countries outside Europe with lower costs and lower environmental standards, the complexity of the decision in favor of the energy transition and the Green Deal becomes clear.

The framework defined for the energy industry plays a part in shaping the structure of an economy and the social context of a country. At least in Germany, it has become increasingly clear over the past few years that the connection between high electricity prices (for consumers) and energy policy is gaining importance on the political agenda and that political and social pressure is being created. For example, especially for low-income households, German energy policy increasingly represents a significant cost burden and entails a perceptible loss of purchasing power. “We need a brake on inflation that operates and is effective at many points. For example… In the case of energy costs, where the state is often a price driver. We finally need an electricity price cut of the type that has been promised. … Politicians can and must revoke the price increases for example for heating energy and replace them by a climate policy that is effective and affordable,” said Dr. Dietmar Bartsch, Chairman of the Left Party Fraction in the German Bundestag during the Bundestag election campaign in 2021.¹¹

It is normal practice for politicians to adopt balanced regulatory policies with a view to leveling out such distorting effects. However, as we will see in the course of the book, the standards set by German energy policy are to a very large extent responsible for this distortion. At this point, it should be emphasized that climate change is definitely a key, essential challenge to the human race. It is also undisputed that there can be no quick and easy answers to such a complex, multifaceted topic. It will therefore be necessary to define measures to effectively combat climate change. However, the measures chosen will largely determine how effectively and efficiently politicians deal with this problem.

In order to gain an overview of the many questions arising, this book offers a clear view of what “energy transition” and “Green Deal” specifically mean, what consequences can probably be derived and how German climate protection efforts can be considered in the international context as well as how other economies or their energy industries have adapted to the universal challenge that is climate change. It is worth considering these matters as the measures taken in the name of climate protection will affect society and the economy for many years and shape the lives of future generations.12/13

In order to ensure a clear structure, this book operates with cascades of questions – questions arising from the internal logic of the individual topics, for example with respect to the key role of carbon dioxide with respect to the climate. In this context, the author refers extensively to information available on the Internet and has quoted such information to the best of his knowledge and belief. To ensure greater readability, some quotations have been made which also include preceding sentences – in contravention of normal academic practice –, if there is a connection between the sense of the sentences. At this point, I would like to thank the authors of the many Internet contributions which I have quoted which I could not name in person as these contributions were published anonymously.

I Energy policy: the energy law framework¹

In order to understand how political interventions in what is basically a free market economy function – for example with a view to protecting the climate – it is necessary to take a look at energy industry regulation. In economic theory, state interventions in functioning markets are considered to be distorting and detrimental as they generally lead to misallocations, which means that limited resources cannot be used in the optimum way. However, there are exceptions. These include the energy industry. Most countries in the world regulate their own energy industry as it is assumed that energy markets cannot be fully functional markets as a result of a number of special factors.

Politicians justify state interventions in energy markets by referring to the partial failure of markets; the reasons given include the following:

a)       Energy plays a key role in the functioning of an economy; it is a basic prerequisite for economic activity and therefore deserves protection;

b) Energy generation calls for the utilization of quantity and size effects and therefore becomes a question relevant to the overall economy;

c)       Fossil fuels lead to economic interdependencies between countries which have far-reaching geopolitical consequences;

d) Energy generation and consumption have effects on the environment which concern society as a whole.

From the economic perspective, the failure of national energy markets is used to justify state intervention. Frequently, the intervention of the state is explained in terms of externalities², however, there is a tendency for politicians to use the market failure that has been identified as a justification for all types of state intervention. At least on the German energy market, politicians tend to give priority to corrective interventions by the state when considering alternatives.

In turn, this entails a risk that partial market failure may develop into a failure of the state and that the state will overinterpret its regulatory function with respect to the energy market. In view of the billions of Euros that taxpayers will need to pay for the energy transition and the Green Deal, financing energy policy measures and special, competition rules which are in some cases disputed, this question should at least be discussed with an open outcome. It is certainly possible to be of the opinion that it was only state intervention that laid the foundations for the market failure often identified in the German energy market and its sub-markets.

What is the conclusion to be drawn? After politicians have identified partial market failure in the energy market, political intervention becomes possible. However, political intervention calls for specific (energy) policy goals. In Germany, these are represented by the “target triangle” of energy policy³, which aims for economic viability (affordability), environmental compatibility and security of supply. The energy policy goals of Germany – which focus mainly on reducing national greenhouse gas emissions – are subordinated to this target triangle and cannot be considered independently of it.

The specific (energy) policy goals of the German government are currently presented in a target architecture consisting of four layers⁴:

·      The top layer of the German government’s target hierarchy consists of the general (energy) policy objectives,: a) climate (= reduction of greenhouse gas emissions), b) phase-out of nuclear power by 2022, and c) competitiveness and reliable power supply.

·      The next layer indicates the approach adopted for implementing these political targets. The German government has defined two basic strategies (core objectives): a) increasing the share of renewable energy sources in overall energy consumption and b) reduction of primary energy consumption and improved energy efficiency.

·      From these two core objectives, steering goals for the individual sectors are derived; these flesh out the core objectives for the individual sectors (power, heating, transport) and define them more precisely.

·      Finally, these steering goals must be achieved by suitable, specific measures such as legislation and incentive programs in the individual sectors.

These goals are embedded in extremely ambitious quantitative conceptions of what can be achieved by the German or European economy as a contribution to the decarbonization aimed for by energy policy. At the same time, the energy policy of the German government wanders off into abstract statements: “With the energy transition the German government proposes to embark on the path towards a reliable, economical and environmentally-compatible energy supply system of the future.”⁵ This is also “only” energy policy, but a sufficiently non-specific energy policy statement allows all types of measures to be grouped together, including those which do not actually serve the real energy policy goal. Some of the goals are stated extremely vaguely: “Economically sensible transformation of the energy supply system is a major factor in sustaining public acceptance and making the country more competitive.”⁶ On this basis, a precise analysis of target achievement is not possible.

Without specific targets, it is not possible to develop a specific energy policy. A more specific policy could, for example, involve the setting of quantitative development targets for renewable energies – at the same time as balancing conflicting interests⁷ – or introducing a general limit to the share of taxes and state levies in average energy costs. Without such a limit, it will hardly be possible to halt the dramatic rise in costs which has already been observed. Quite apart from these considerations, the diffuse, small-scale energy policy of Germany down to the level of individual measures calls for enormous supervisory effort with far-reaching interventions of the administration in society and the economy. The consequences include disturbance of the economic balance and the high cost of bureaucracy.

Heterogeneous political ambitions restrict the opportunities for holistic energy policy in Germany. German energy policy commitments currently range from political decisions, such as the phase-out of nuclear power, to declarations of intent such as the reduction of primary energy consumption to concrete ambitions for specific sectors such as transport. In this context, the effective assignment of priorities becomes a challenge especially as the voluntary undertaking given by the German government diverges from reality in some aspects. In view of the dimensions of the task involved, the aspiration of Germans to achieve the most cost-effective solution combined with optimum system integration through energy policy measures is simply unrealistic.

Categories of energy policy measures

National energy policy and the resulting measures aim to operate on a complex system that is affected by a large number of external and internal factors. Although these factors may vary from country to country and over the course of time, the basic underlying logic is the same throughout the world. As diverse as the energy policy goals of national governments may be, the intended steering effect is determined by specific energy policy measures which are similar throughout the world in systematic terms. In order to gain a better overview of the energy policy “toolkit” that is available, the relevant classifications of measures are outlined below.

When classifying energy policies, it is normal practice to distinguish regulatory, market economy and other measures. Especially regulatory measures and market economy (price) solutions are regarded as effective tools. In this context, regulatory measures mean restrictions on behavior with punishment for non-compliance. However, in economic terms, every restriction on behavior has one thing in common with all the other measures – desired behavior is regulated in terms of quantity. Typically, maximum values are stated for pollutant emissions or certain product characteristics. For example, the ban on fracking for natural gas production in Germany can be considered in this category.⁸ The same applies to the privilege given to wind energy in the energy industry and to the expansion of the transmission grid, which is also a regulatory tool.

On the other hand, market economy (price) solutions are based on impulses which aim to influence behavior via pecuniary incentives including (energy) taxes, levies, fees or permits. For example, the introduction of so-called CO₂ permits, which will be dealt with in a later chapter, simply makes the basic product (as the origin of the CO₂ emissions) more expensive, with a view to having a steering effect. Subsidies are also among the (market economy) price solutions. These aim to make a product or a technology competitive or more competitive through financial support. However, subsidies are always taken from tax revenue and are therefore always connected with the moral question of their opportunity cost. For example, German politicians have provided subsidies for photovoltaic systems while the operation of these generating systems is scarcely economically viable, at least in Germany, as we will later see.⁹

The other measures are mainly based on voluntary commitments. This is a very elegant solution as it normally involves little work and low cost at the same time as being highly compatible with the market and flexible. However, setting a target value which is appropriate for achieving the steering effect desired represents a real challenge. Once this target has been set by politicians, implementation and achievement are a matter for the companies who have entered into the commitment. However, the consequences if the desired result is not obtained represent a political problem. Legislative bodies would really be under an obligation to achieve the desired target by other regulatory means, which would then need to be especially stringent.

A special form of other measures is the provision of information. This approach is based on the assumption of information asymmetry between the better-informed state on the one hand AND the less-well-informed public on the other hand. Classical asymmetry effects include information concerning the environmental compatibility of a product The state develops large-scale education and information campaigns, for example the use of stickers to indicate the energy consumption of an appliance such as a refrigerator. Recently, in connection with this approach, the concepts of “nudging” ¹⁰, i.e. giving people a nudge in the right direction and “framing” (the recipient’s behavior can be influenced in different ways by the same content depending on the formulation of the message) has become increasingly popular. In both cases, these approaches represent the manipulation of people’s behavior with a view to eliminating the cause of behavior not desired by the state. However, this approach is subject to criticism; the evident problem is connected with the close relationship between care for citizens and ideology, the fact that the state can never know better and that efforts to steer behavior must always be limited by the concept of the responsible citizen.

The significance of regulation

In most of Europe’s national electricity and gas markets, the prevailing trend for about 20 years from 1990 was away from organization by the state towards organization on the basis of competition. In connection with this trend, markets within the European energy industry were fundamentally reorganized. However, at the beginning of the new millennium, public expectations and the tone of public discourse changed. The energy industry has increasingly been interpreted as a task for the state. Despite the liberalization of markets, the energy industry is still not fully organized on the basis of competition, especially as a result of its connection with networks. However, this does not apply equally to all the stages in the value stream. While upstream stages such as power generation and gas exploration and downstream stages such as wholesale and retail gas and power sales are characterized by tough competition, competition can, as a general principle, only be established to a limited extent with respect to power and gas networks.

The natural monopoly inherent in a network simply calls for general regulation. The monopoly character of the mid-stream segment, i.e. transmission and distribution systems, is often quoted by politicians as a justification for regulatory interventions in the energy industry. However, these interventions have their price. As with all regulatory interventions by government, they lead to economic inefficiencies in energy markets. As a consequence, further reforms and further regulatory interventions become necessary.

The regulation of the energy industry is based on the fundamental conviction that competition can only function within energy markets if energy networks, which have a monopolistic structure that excludes competition, are regulated. As with all forms of regulatory intervention, the challenge is to achieve a balance between economic efficiency and the economic viability of the companies involved. Recently, this challenge has frequently been met by the politically motivated re-acquisition of power supply systems, especially networks¹¹ by local authorities. In this context, local authorities frequently present themselves to the public as the “better entrepreneur”, which is of course not necessarily the case.

From the point of view of the public sector, the basic question, at a high level of abstraction, is how the midstream segment of the energy industry value stream can be regulated without the cost becoming exorbitant. In theory, there are various possibilities. The two main regulatory tools in this context are unbundling, a structural measure, and the control of network charges, a regulatory measure affecting prices.

Unbundling is an intervention in existing market structures and in some cases even directly operates on individual companies. In terms of energy policy, “unbundling” is mainly used to refer to the separation of the network divisions and other divisions of companies. European energy policy regulation sees the non-discriminatory, transparent access to networks at reasonable cost as a pre-requisite for a fully functional, competition-oriented single market. As a result, transmission and distribution system operators must not only be legally and operationally independent but also independent in terms of information and accounting systems. In Europe, network operation and other corporate divisions in the energy industry are organized in independent or vertically integrated structures.¹²

Different regulatory methods can be adopted for unbundling corporate divisions. An especially popular approach is legal unbundling. In this approach, the network division of the energy supplier is spun off into an independent company. Unbundling explicitly allows the network division to remain in the ownership of the former integrated company. However, this form of regulation is expensive for consumers as all the shared services previously performed by the integrated company can no longer be implemented within the new organizational structures and must now be performed by the network company itself.

In contrast, the control of network charges, the second regulatory tool, focuses on non-discriminatory, reasonable network charges. Within this regulatory tool, various different approaches can be adopted. In European regulatory practice, the cost-based approach or “cost-plus regulation” has become established. In this approach, companies are allowed to set prices which cover all their costs as well as including a “reasonable” allowance for profit. This also represents the weakness of the approach, namely the below-average incentive it provides for operating economically. Any efforts by network operators to reduce their costs are “punished” by lower prices. In addition, the regulatory authority requires a large volume of information, which also ties up economic resources.

In contrast to cost-plus regulation, price-cap regulation is based on the general development of prices; the data required are easy to obtain and transparent. With this approach, individual companies have an incentive to operate cost-effectively. If the company is more efficient than the average company in its sector, this is directly reflected by economic success. However, the limits or caps that apply need to be set. Despite the (often scientific) justifications given, the need to define a boundary between acceptable and unacceptable is inevitably connected with a high degree of subjectivity on the part of the government bodies defining the caps.

A classic example is the European regulation of carbon dioxide emissions by passenger cars. As a general principle, the average emissions of the newly registered vehicles of a manufacturer in Europe must not exceed a limit set by law, expressed in grams of CO2 per kilometer driven. From 2015, the limit for passenger cars was 130 g CO2/km. This was reduced to 95 g CO2/km from 2021.¹³ In a technically mature sector such as the automotive industry, it is extremely challenging to realize efficiency improvements of almost 30 percent within the space of a few years. There were certainly reasons for imposing more stringent limits (possibly in order to encourage the use of electric cars) but the definition of the “right” limit will always remain arbitrary. In addition, the limits set may have a negative impact on the companies regulated or on product quality.

As a basic principle, all forms of regulatory intervention always have an impact on economic incentive structures. The starting point is the consideration that a competitive market situation will always be associated with lower prices and higher well-being for consumers than monopoly structures. However, even in liberalized markets, prices will not always automatically continue to fall. One example is the development of electricity prices. The technical alternatives for power generation have become increasingly diverse and the quantity of power available has increased significantly over the past few years as a result of the support for renewable energies. Electric power prices should really reflect the actual supply and demand situation, i.e. increase in the case of shortages and fall in the case of surpluses. But, at least in Germany, power prices for private consumers have continuously risen. As will become clear in later chapters, this is one of the negative consequences of state regulation as the costs of regulation are added to electricity prices in the form of levies.

Appropriate network regulation is needed in order to stimulate competition within the energy industry. This is the only way in which competitive structures can be established throughout the energy industry supply chain, existing market structures can be dismantled and new market players with new business models and products can be developed. To date, especially in the local authority segment of the energy industry, it has been normal practice to use profit from power and gas sales to compensate for losses in other areas of public services, i.e. to practice a cross-subsidy approach. In addition, despite the undoubted efficiency gains as a result of the liberalization of the energy industry, the regulation of networks alone, the normal practice in Europe, also poses new challenges in terms of standardized network access conditions and network charges:

·      For a long time, the market structure of the European energy industry was characterized by oversized power generation capacities which served as a generous reserve for supply bottlenecks at the national level. However, it increasingly became impossible to finance backup facilities. The results were market consolidation phenomena with unpleasant side-effects such as plant shut-downs and job losses with severe impact on individuals in certain regions.¹⁴

·      The separate treatment of the network segment by regulatory authorities results in a need for intensive liaison between the newly unbundled companies and gives rise to transaction costs, which have a corresponding negative impact on economic efficiency.

·      While investments in the energy industry are normally of a long-term nature, ¹⁵ energy as an economic good has a short-term orientation. Compared with other industries, this leads to an imbalance in the opportunity and risk profile. It would appear appropriate to finance this imbalance via higher prices to end-users. However, it is precisely the market price that is intended to provide an incentive in liberalized markets. In view of the amount and long-term nature of the investments involved, the results are a reluctance to invest and pressure to optimize. Without regulatory impulses, there is a risk of the industry operating at its limits.

These challenges can be mastered by setting an appropriate energy policy framework. However, such a framework also has its price. The energy policy priorities currently set in Germany entail the risk of market distortion¹⁶ associated with significant economic costs. In turn, these costs may adversely impact on the entire economy if energy prices exceed the level accepted by society. Furthermore, structures which are not ideal for an economy with respect to efficiency and effectiveness may be established in the energy industry for decades.

Considering the fact that energy is one of the most important resources of a modern industrialized society, high energy prices as a result of a lack of efficiency and effectiveness in an over-regulated industry entail a realistic risk that energy-intensive companies may choose to leave the economy. In the wider sense, the economic competitiveness of a country may sustain long-term damage with resulting massive job losses (for example as a result of energy policies aiming for full decarbonization). Currently, it would seem to be “only” a question of time, at least in Germany, before the associated significant loss of well-being as a result of current energy policies leads to acceptance problems among the public.

At this point, the frame of reference within which regulation is required is the decisive question. At least in the Western world, this is the “fight” against climate change or carbon dioxide, the gas which has been proclaimed as a detrimental greenhouse gas. In Germany, this objective of energy policy regulation has become established under the heading of “energy transition” and in Europe under the name of “Green Deal”.

Excursion: Carbon dioxide

The media and politicians in the Western world have stylized climate change, which is really a natural process, as a threat to the human race as it is difficult for a non-expert in climatology to say to what extent current climate changes are still following a natural path. For several years, the public has discussed the abstract parameter of the anthropogenic atmospheric carbon dioxide concentration as one of the main causes of climate change. Energy policy, especially in Europe, therefore focuses on reducing carbon dioxide emissions to the atmosphere. Although there are other scientific opinions, carbon dioxide is widely perceived to be the main cause of the so-called greenhouse effect in the atmosphere and therefore also of the climate catastrophe. At least with the level of knowledge of the general public in Western societies, many people therefore now regard carbon dioxide as especially harmful in itself.

To avoid any misunderstandings, it should be stated at this point that climate change is definitely real and that it is undisputedly the responsibility of each individual person to conserve and protect their environment. To this extent, it is entirely appropriate that human beings should oppose the anthropogenic destruction of the planet. However, the highly prominent and widely publicized conviction that the human race alone is the cause of climate change and could influence climate change solely by reducing its own CO₂ footprint¹⁷ is not confirmed so clearly by scientific findings. Carbon dioxide is an odorless, invisible gas (in contrast to the illustrations of many press releases which show smoking chimneys) which is not harmful in itself. Indeed, without the greenhouse effect, human life on earth would not be possible.

For an individual person, it is of course extremely challenging or even impossible to appropriately assess climate change, which is presented as a risk, and his or her own contribution (information asymmetry). Each individual depends on the state assessing climate change and, if necessary, initiating appropriate counter-action. Whether the future of humanity is threatened by excessive carbon dioxide levels and a CO₂-free but allegedly “uncontrollable” technology (nuclear power) should be phased out despite this situation is a question that calls for careful and broad-based scientific consideration as well as intensive debate within a democracy.

Energy policy interventions are faced by the special features of greenhouse gases. Especially in the case of carbon dioxide, the following environmental and economic properties need to be taken into consideration: a) geographic separation of damage locations from emission sources¹⁸; b) global effect; c) considerable time delay between emission and effect. This means that the political sanctioning of greenhouse gas emissions is so multi-faceted and complex that the effective allocation of costs to polluters is only possible to a limited extent. Nevertheless, as already mentioned, carbon dioxide has become the key target parameter of environmental policy interventions. It is therefore important to present a few basic considerations concerning carbon dioxide at this point.

Carbon dioxide is referred to as a trace gas as it only occurs in very small quantities in the gas mixture that constitutes the earth’s atmosphere (air) in comparison with the two main constituents of nitrogen (about 78 percent) and oxygen (about 21 percent). With a share of about 0.04 percent¹⁹ by volume, the atmospheric concentration of carbon dioxide is so small that it is expressed by scientists in parts per million (ppm) 20. Nevertheless, even in this low concentration, carbon dioxide is fundamentally important for life on earth for various reasons. Considering photosynthesis or the breathing process of the vast majority of organisms, there is no doubt that this is the case.

For the cycle of life on earth, it is therefore essential for carbon dioxide to be present in the atmosphere. However, it is certainly justified to ask whether human action may change atmospheric carbon dioxide concentration levels to the extent that the natural cycle is disturbed. It has been established that the carbon dioxide molecule persists in the atmosphere for an extraordinarily long time. It takes many years before today’s additional emissions are gradually absorbed by the biosphere and oceans.²¹ the decisive question is therefore whether carbon dioxide, as a so-called greenhouse gas, ²² really makes such an essential contribution to the greenhouse effect that it can be seen as the main cause of climate change on earth.

Scientists agree that the atmospheric carbon dioxide concentration has fluctuated during the history of the earth without any human contribution and that there have already been severe climate change events in the course of the earth’s history. Scientists also agree that greenhouse gases ²³ in the atmosphere prevent the Earth from being heated by reflecting part of the solar radiation reaching the atmosphere; at the same time they also prevent part of the heat reaching the earth from being radiated into space. As a result, greenhouse gases prevent the occurrence of extreme summer and winter (or daytime and nighttime) temperatures. In scientific terms, greenhouse gases create desirable effects for human beings. It is therefore inappropriate to consider greenhouse gases to be detrimental in themselves.

However, it is the dose that makes the poison. This is why the atmospheric concentration of carbon dioxide (and other greenhouse gases) is viewed as critical, as a rise may lead to a global temperature rise and to other environmental changes detrimental to humanity and nature – such as the melting of the polar ice caps, rising sea levels, the shifting of vegetation zones, more frequent extreme weather catastrophes and a large number of other natural problems.

However, it is precisely the questions of how much carbon dioxide in the atmosphere is too much and how this figure can be predicted that are disputed. Modern meteorologists can make relatively precise weather forecasts for several days in advance. However, meteorology cannot predict how the weather (climate) will be in 5, 10 or 15 years. The factors influencing the climate are too numerous and too complex. Such climatic forecasts are based on highly complex mathematical weather models which depend on a large number of different parameters; in turn, these are based solely on assumptions. It is therefore illusory to assume that people today are in a position to precisely predict the global climate for the next few decades.

Nevertheless, many people living in Western societies have gained the impression that scientists throughout the world are largely agreed on the fact that climate change is human-made and that changes in global average temperatures can be influenced to a large extent by decisive action taken by humanity. The starting point is the assumption that the combustion of fossil fuels releases excessive carbon dioxide, disturbing the equilibrium of the Earth’s existing carbon dioxide cycle. Conversely, this assertion is also based on the assumption that the emission of carbon dioxide from organic materials and the absorption of the gas by photosynthesis are normally in balance and that it is only human action that disturbs this balance.

On the other hand, we have scientifically well-supported findings that the carbon dioxide concentration in the atmosphere has been highly volatile over the course of millions of years in the history of the earth and was subject to significant fluctuations in long cycles. There have been phases in which the atmospheric carbon dioxide concentration rose significantly without any human contribution whatsoever. These findings are based for example on analyses of cores drilled out of earth and ice which allow carbon dioxide measurements on air bubbles trapped in ice or a suitable soil stratum a very long time ago.²⁴ Furthermore, changes in atmospheric carbon dioxide concentrations over the course of time cannot be correlated on a 1:1 basis with global warming. A rise in the carbon dioxide concentration is far from being a reliable indicator of a global temperature change of a certain magnitude.

The causal link between atmospheric carbon dioxide concentration and a rise in global average temperature has not yet been fully investigated. To this extent, a time window of 170 years (most carbon dioxide retrospectives start with the year 1850 because of the availability of data, and the concentration at that time is regarded as a pre-industrial value) is not yet sufficient justification for assuming an inseparable link, in view of the fact that the earth has a history going back 500 to 600 million years.²⁵ And despite the continuously changing climate, the Earth was not an inhospitable place but presented good conditions for life; this is confirmed by animal and plant fossils from very different periods in the earth’s history.

Although the annual average carbon dioxide concentration (referred to the total number of molecules in the air) in 2019, at 410 ppm, represented an increase of about 50 percent with reference to the pre-industrial 1850 value referred to above, the time period considered is simply too short, with reference to the history of the earth, to be able to make well-founded statements concerning patterns of global climate change over the next 30 years. Even though the average global temperature²⁶ rose significantly over the period considered²⁷, it must also be noted that the uncertainty associated with this statement is so high that it is possible that the temperature rise observed was not as significant as assumed or may not even have occurred at all.

Even though it is understandable that the rise in atmospheric carbon dioxide concentration over the past 170 years should be interpreted as an alarming signal, a serious discussion concerning anthropogenic climate change can only be conducted on the basis of a significantly longer historic time axis. At least the current scientific findings suggest that the world’s climate has been subject to significant fluctuations over the course of its history. Climate can never be a constant. In this context, it is worthwhile remembering the hypothesis, popular in the 1970s, that the carbon dioxide available on the earth had continually been reduced over the preceding millions of years and had been depleted to the point where a new ice age (Snowball Earth) could be impending.²⁸ To some extent, public discussions are always determined by the zeitgeist.

It may be surprising that ice-free poles are nothing unusual in the history of the earth and that polar ice caps are not an absolute certainty. At the same time, even in times of rising global temperatures, there may even be growth in the polar ice caps .²⁹ There are certainly also causal links in the field of the climate. However, the world’s climate is considerably too complex to be explained solely in terms of the increase in atmospheric carbon dioxide concentration.

Regulatory tools

As already mentioned, energy policy normally focuses on three major goals; these are, however, associated with side effects as a result of their incompatibility, which is to a certain extent inherent. Nevertheless, ecology and economics need not be conflicting objectives, especially since the focus on renewable energy sources as an alternative type of generation and in general the intended decarbonization of the economy will call for investments on an enormous scale which may generate genuine impetus for growth. New competitors appear on the scene and provide additional impetus with their innovative power in the energy sector. Even so, in the long term, the “winners” of the energy industry transformation of the economy are always the major established players. Why is this the case? For a newcomer, the initial infrastructure investments required can normally NEVER be realized without the backing of the taxpayer. Furthermore, the density of regulation in the energy sector represents an almost insuperable obstacle for new entrants. Finally, for practical reasons, “only” the key players in the industry are normally invited to consultation meetings on energy industry legislation plans or represented by industry associations at such meetings and can therefore influence the process of political decision-making. In brief, in view of the immensity of the task in hand and the nature of the energy industry, described above, there is a tendency towards monopolization in this context.

In order to counteract this effect and to avoid distortion of the economic equilibrium, environmental and economic tools must be deployed efficiently and effectively. An essential prerequisite for effective environmental policy regulation is clearly formulated, precisely defined goals. However, long-term forecasts of climatic processes have become the basis of regulatory action and the reduction of global carbon dioxide emissions has become the major leitmotif of environmental policy, at least in Western societies. At this point, it is worthwhile considering the environmental policy tools used by government for enforcing these objectives. The most common tool tools used throughout the world are: a) legislative requirements, b) taxes and c) permits. None of these tools is inherently superior to the others but they are deployed by politicians as a function of the targets concerned (pollutants/environmental problem):³⁰

In energy and environmental policy regulation, legislative requirements are normally the solution preferred by politicians. Such requirements can usually be understood intuitively and need no compressive explanations. They are used by politicians to set a framework for a certain desired behavior and non-compliance is punished. They are used in a wide variety of situations. Provided that compliance is ensured, the people concerned have no further point of contact with the state.

Environmental taxes (frequently referred to as Pigovian taxes ³¹) aim to include externalities, in this case environmental pollution, in private supply behavior. Normally, the person causing environmental pollution can ignore the associated cost (or at least part of the cost). This applies for example to the carbon dioxide emissions created in the course of the production process. In order to include the carbon dioxide emissions generated by the production of a good in the pricing of that good by the producer, the state imposes an environmental tax on the person or body causing the emissions concerned. This puts a price on the pollution of the environment with carbon dioxide, which becomes an element in supply behavior. For example, if the production of a vehicle causes a certain quantity of carbon dioxide emissions, these emissions have their price in terms of environmental taxes which are then passed on in whole or in part to the consumer. This gives the car maker an incentive to generate as little carbon dioxide as possible during production in order to reduce the tax payable per unit of the environmentally damaging good produced.

Finally, permits are simply (emission) rights. By allocating a permit, the state defines a certain admissible environmental impact for a defined region and period. Normally, the admissible maximum impact is distributed among a certain number of permits and these are then allocated to the emitting companies via an allocation mechanism. The key advantage of permits is ease of trading as companies can trade the permits with each other without restrictions. This market mechanism creates an incentive for companies to only emit a unit of pollutant or to deploy a permit which is available for that unit if the avoidance of the unit of pollutant is more costly than the corresponding permits.

Permits which are no longer required can be sold to other companies or the company concerned can save the cost of such permits. For the functioning of emission rights or permit trading and especially for the pricing of such permits, the price charged by the state and the allocation mechanism are immaterial. In brief, permits make emissions an economic issue for the company; the cost of permits must be weighed up against the cost of pollution avoidance. At the same time, permits always reach the companies for which pollution avoidance is easiest or which have the highest avoidance costs. For these reasons, permits are considered to be especially economically efficient.

A number of criteria are normally used to assess whether a specific environmental tool is fit for the purpose. These include: a) ecological effectiveness (is the tool suitable for achieving the goal that has been set?); b) cost effectiveness (at what cost is the target reached?); c) international competitiveness (is the tool suitable in view of the existing international context?) and finally d) political and social enforceability. It can easily be seen that these assessment criteria are sufficiently abstract to be interpreted as having been met or not met in practical energy policy regulation.

Especially politically motivated regulation is often based on suggesting to the public that well-founded knowledge is available and that there is no alternative to the regulatory approach concerned. For example, politicians giving a justification for regulation under the heading of “saving the climate” often create the impression that model calculations can already give secure predictions of the behavior of the climate in 50 years’ time or changes in global average temperature over the next few decades. However, it is simply impossible to give a reliable, well-founded projection concerning the development of such a highly complex phenomenon as global climate change over such a long period.

In the Western world, the impression has nevertheless been created over the past few years, with political motivation, that the human race faces an imminent climate catastrophe and that urgent action is essential. At the same time, it has been suggested that individual “national” measures adopted by governments would be sufficient to provide an adequate climate policy response. However, it is a fact that precise modeling of global atmospheric carbon dioxide concentrations over the next few decades is an imperfect or even impossible process. Neither scientists nor politicians can currently determine the precise effect on the global climate of energy policy measures that have been adopted (or are to be adopted).

However, this is precisely the essence of targeted (energy) policy intervention. If politicians impose state intervention on citizens, the intervention concerned must refer to a specific measure. In turn, the measure adopted must aim for a specific measurable result. If this is not possible or the result aimed for is not produced by the measure adopted, the underlying procedure is simply inappropriate.

In the case of the climate policy currently pursued – at least in the Western world and more especially in Germany – it is currently only possible to a limited extent to assess the efficiency and effectiveness of the measures already adopted. However, balanced, “future-proof” regulation would mean establishing a link between the measure and the effect or between liability and responsibility. The blind implementation of tools which are scarcely effective in terms of energy policy combined with the vehemence with which regulation has focused on the limitation of carbon dioxide emissions in Germany will in many respects create a burden on the further development of consensus within society in the future. As will be demonstrated later, the opportunity for economic participation in energy policy decisions is certainly a social question. In addition, the affordability of electric power is of elementary importance for the economic prosperity of a country. Finally, the security of energy supply is a precious good for society as a whole. Currently, this good is threatened by blackouts or brownouts (national or regional power cuts).

International climate diplomacy

One of the key players in international climate diplomacy is the Intergovernmental Panel on Climate Change (IPCC) a United Nations organization established in 1988 by the United Nations Environment Program (UNEP) and the World Meteorological Organization (WMO). One of the most important tasks of the IPCC is to compile current knowledge on climate change, to assess this knowledge from the scientific point of view and to prepare regular reports on these activities.³² These reports are taken up by governments throughout the world and are frequently used as a justification for energy policy regulation. Furthermore, the IPCC reports play a role in shaping public opinion and are also the reason why carbon dioxide emissions are now regarded as dangerous in the Western world.

“Climate” is defined by the IPCC as “…the average weather, or more rigorously, as the statistical description in terms of the mean and variability of relevant quantities over a period of time …“.³³ However, climate and weather are highly complex, chaotic phenomena affected by a wide variety of factors; even small changes in these factors may have severe effects. At least with the current state of scientific knowledge, it is not possible to give a well-founded final assessment of the extent to which an individual factor affects the final result. There is no doubt that a change in the atmospheric carbon dioxide concentration has an effect on the climate or that greenhouse gas emissions caused by human beings influence the concentration. What is not undisputed is the magnitude of this effect.

To this extent, the statements of leading politicians such as that made by then US President Barack Obama in 2013: “97 percent of scientists agree: climate change is real, man-made and dangerous” are correct.³⁴ However, Barack Obama bases his statement on a study by John Cook (and other scientists) of the University of Queensland, Australia, which has since become famous. This study only confirms the banal fact that scientists agree to a very large extent that human beings contribute to global warming .³⁵ The decisive question in this context is the assessment of this contribution, which is by no means a matter of such wide agreement. There are certainly perceptible differences between the opinions of scientists on matters such as the magnitude of human impact on climate change or the significance of the atmospheric carbon dioxide concentration for the global climate.

Among other things, it is the objective of the IPCC climate reports to document such controversies and uncertainties .³⁶ For example, the IPCC predicts that a doubling of the atmospheric carbon dioxide concentration compared with the pre-industrial era would result in global warming of more than 3 degrees Celsius. The earth is already more than one degree warmer than in the pre-industrial era. On this basis, if carbon dioxide emissions continue at their present level, humanity could already be in crisis mode in 60 to 80 years as a result of phenomena such as changes in the water cycle or extreme weather events such as heatwaves or severe rain.³⁷ This, at least, is the prediction of the IPCC.

As the atmospheric carbon dioxide concentration is the result of accumulated emissions of the past, the effect of present measures can only be finally evaluated in the future. However, although it is only possible to a limited extent to make a well-founded statement on the role of carbon dioxide emissions in climate change, the long-term change in statistical averages does provide a certain orientation. In the 1950s, the carbon dioxide concentration was about 310 ppm. In the pre-industrial area era, in 1850, the figure was 280 ppm and it had reached 410 ppm in 2019. To this extent, it is therefore possible to observe a parallel development in terms of rising atmospheric carbon dioxide concentrations and temperature rise at least over this short period. However, it has not yet been fully established how strongly one factor affects the other or whether they are causally correlated or only correlated by chance.³⁸

It would therefore be appropriate to be cautious about positing a causal link between the phenomenon of global warming and atmospheric carbon dioxide concentration. Nevertheless, at least in most Western media, among politicians and in public opinion in general, carbon dioxide is now normally considered to be the cause of global warming and therefore also of various negative weather and climate phenomena. As a result, international climate policy concentrates on limiting global warming; carbon dioxide emissions are therefore the predominant focus of energy policy measures.

What does that mean in specific terms? For the effective international coordination of climate policy, a number of global environmental climate conferences have been initiated over the past few decades.³⁹ The starting point for global climate activities was the United Nations Conference on Environment and Development held in Rio de Janeiro in 1992. It was at this conference that climate change was officially discussed for the first time as a major challenge faced by humanity; the result was the United Nations Framework Convention on Climate Change ⁴⁰. This laid the foundation for the subsequent global climate conferences that have been held on a regular basis. A milestone in international climate policy was the third global climate conference held in Kyoto, Japan, in 1997. This gave rise to the first binding international treaty on climate change, the Kyoto Protocol. The Kyoto Protocol focused on efforts to reduce the annual greenhouse gas emissions of industrialized nations by an average of 5.2 percent compared with 1990 as the base year, between 2008 and 2012.⁴¹ To provide motivation for implementation, the Kyoto Protocol defined various economic incentives including emission trading and also the Clean Development Mechanism (CDM).⁴²

A second major milestone was the 21st COP held in Paris in 2015 .⁴³ Following the expiry of the Kyoto Protocol, it was necessary to develop a successor convention extending up to 2030. The result was a declaration of intent by many countries to limit global warming to less than 2 degrees or, to the extent this was possible, 1.5 degrees. At first sight, this was a success of international climate diplomacy. However, each country is free to determine its national contribution to climate change itself. In the final resort, faith in these Nationally Determined Contributions (NDCs) is a key tenet of the Paris Climate Agreement. In the NDCs, both industrialized and developing countries formulate their emission reduction and adaptation targets up to 2030 themselves. Starting from 2020, these targets have been verified and updated in a 5-year cycle.⁴⁴

Following the Paris Climate Protection Agreement, there was certain criticism, in some cases vehement, within the framework of the national political debates to which it gave rise. For example, the USA announced its departure from the Paris Agreement in mid-2017.⁴⁵ Quite apart from the Paris Agreement, it is clear that the USA will continue to support a reduction in greenhouse gas emissions. The Americans have also declared publicly that they wish to regulate for a level of atmospheric greenhouse gas concentration which will limit negative anthropogenic effects. Specifically, the voluntary undertaking of the USA is based on a reduction of between 26 and 28 percent in greenhouse gas emissions by 2025, compared with the level of 2005.⁴⁶

In contrast, the European Union or its 15 Member States at the time had agreed to emission reductions of only 8 percent under the Kyoto Protocol. As its Nationally Determined Contribution under the Paris Agreement, the now significantly larger European Union agreed in 2015 to reduce greenhouse gas emissions by at least 40 percent by 2030, compared with 1990. Five years later, in 2020, this figure was raised by the European Commission to an emission reduction of between 50 to 55 percent by 2030 as part of the European Green Deal.⁴⁷

And the “Impact Assessment“ presented by the European Commission at the same time, which represents an assessment of the consequences of the new climate strategy, explains that a reduction of this order of magnitude by 2030 will be “feasible and advantageous” for Europe. The European Commission supports the statement by referring to the success of the approach adopted to date. It is stated that Europe has succeeded in reducing carbon dioxide emissions by 25 percent since 1990 while the economy has grown by 62 percent over the same period. The assessment does not mention that these savings cannot be projected to future periods. The Commission also informs citizens of the European Union that an additional investment of an average of 1.7 percent of gross domestic product per year is to be made in eco-energy. This corresponds to additional expenditure of €350 billion per year. However, it is improbable that this additional investment can be recouped in the form of reduced fuel imports or health expenditure avoided even over a longer period.⁴⁸

To summarize, it can be stated that energy policy, at least in Europe, is pursuing the objective of climate protection (environmental compatibility) with considerable vehemence. Energy policy decisions are forcing the other two classical objectives of energy policy – security of supply and economic viability – into the background. However, it is rather surprising in this context that the cost of this energy policy orientation has scarcely caused any reverberations in broad discourse within society. For example, the carbon dioxide pricing introduced in Germany in January 2021, which concerns the combustion of diesel, gasoline, fuel oil and natural gas and is subject to an annual increase, already forced the price of fuels to consumers near to historically high levels in the year after it was introduced. The main reason for this development has been the deliberate policy of making fuel more expensive which has being pursued for many years; according to the German oil industry association, the purchase price of the fuel only accounted for about 28 percent of the average price of €1.62 per liter for “Super E 10” gasoline in August 2021. Nevertheless, there have been few general protests by the German public.

In the second half of 2021, the wholesale prices of coal, oil and natural gas started to rise strongly throughout the world. As a result, heating and electric power costs in Europe and especially in Germany rocketed. From the European and especially from the German point of view, the reasons for this development are manifold, including the long winter in 2020/2021, low wind conditions over the year and the resulting additional demand for gas, low volumes of gas in storage compared with the previous year, the end of production in the Groningen natural gas field, Europe’s largest, the revival in the global economy following the Covid-19 crisis and associated higher energy demand. Politicians also mention the allegedly reluctant supply policy of Russia with a view to supporting the commissioning of the controversial Nordstream II pipeline. Only one factor has not been mentioned: the fact that the energy transition and the Green Deal with the objective of a decarbonized economy, even if this objective is realistic, have significantly increased dependency on the alternatives available, at least in a transitional period. If nuclear power and coal, as a fossil fuel, are no longer to be used and the renewable energy sources are unable to fill the resulting gap, the only solution is to fall back on natural gas, which means that an increase in the natural gas price will result in higher energy costs.

In the fall of the same year, the European Commission reacted with a “toolbox” to counteract dramatically rising energy prices. This toolbox includes ad hoc measures such as tax reductions or subsidies for lower-income households as well as proposals for medium-term reforms such as investment in renewable energies, initiating pan-European coordination of gas purchasing, the creation of shared gas reserves and uncoupling the prices of electric power and gas. Irrespective of the attitude adopted to this type of energy policy on the part of the European Commission, households and companies are increasingly suffering from higher heating and electric power costs. As a result of the energy industry framework that has been set, especially medium-sized companies in Europe are losing their international competitiveness. The tense market situation is also leading to a higher risk of insolvency among companies, especially smaller companies selling power and gas to customers in Europe as they are unable to compensate for the increase in purchase prices. In fact, rising energy prices give cause for considerable concern. It is difficult to assess the share of the energy