Germany's industrial output falls by 11% due to exorbitant energy costs

Patricia Nilsson
Financial Times
Sun, 07 Jan 2024 14:52 UTC

© Sean Gallup/Getty Images

FILE: Electricity pylons stand in a row leading to the Unterweser nuclear power plant on March 21, 2011 near Stadland, Germany.

Germany's greenhouse gas emissions dropped by about a fifth last year to their lowest level since the 1950s, although the reduction mostly came from stagnant industrial output in Europe's largest economy rather than improved energy efficiency.

The country emitted 673mn tonnes of carbon dioxide equivalent in 2023 — or 21 per cent less than the previous year, according to Berlin-based think-tank Agora Energiewende's annual review of Germany's energy transition.

Comment: So reduced CO2 emissions - which have no discernible impact on climate - can now be directly linked to the deteriorating state of Gemany's economy.

Roughly half of this drop, which Agora said reflected a "sharp" decline in coal-fired power generation, could be attributed to a slowdown in German industrial activity. Only 15 per cent stemmed from technology improvements such as greater use of renewable energy.

Comment: And even that 15% claim is up for debate, because, time and again, we've seen how they manipulate the data in favor of '[heavily subsidized, inefficient, unreliable] green energy'.

German industry, which makes up a fifth of the country's overall output, almost double that of the US, France and the UK, was badly hit by the outbreak of war in Ukraine, which stymied flows of cheap Russian gas.

Comment: Germany backed the sanctions on Russian energy and covered up the US' sabotage of the Nord Stream pipeline.

While Germany has been among the developed countries leading the charge in cutting emissions, the latest decline comes as many of its companies struggling with the energy crisis are slashing their short-term investments or preparing to shift production abroad.

The world's biggest chemical group, BASF, for example, has announced permanent cost cuts at its Ludwigshafen headquarters because of high energy prices.

German vice-chancellor Robert Habeck welcomed the figures published by Agora, noting that in 2023 more than half of the country's electricity supply had been generated from renewable sources.

Comment: And, in turn, industry is collapsing because energy costs are so high.

But he acknowledged that much of the decrease in fossil fuel use was due to slowing industrial production — an issue of mounting concern for Berlin.

"A distinction must be made when it comes to the decline in emissions in industry . . . the Russian war of aggression and the [energy] price crisis are leading to declines in production. My goal as economics minister is that Germany remains a strong industrial location and becomes climate-neutral," he said.

Speaking at a press conference in Berlin on Tuesday, the president of Germany's industrial lobby, the Federation of German Industries, said the government was failing to understand how "critical" the situation facing manufacturing businesses in the country was.

As a result of rising energy costs, industry in Germany could not hope to be both green and internationally competitive without far greater government support, said Siegfried Russwurm.

"We are no longer talking about short-term economic dips that will correct themselves, but rather about structural problems in Germany as a location," he added. "Concrete measures that actually improve the situation of companies in global competition are unfortunately still missing."

Agora said that, while preliminary figures showed German economic output dropped 0.3 per cent in 2023, the equivalent figure for energy-intensive production in industries such as chemicals and steel was 11 per cent.

"If emissions are simply relocated abroad, nothing will be gained for the climate," warned Simon Müller, director of Agora Energiewende's branch in Germany. Industry needed a more stable framework to invest in climate-friendly technologies such as green steel and the switch from gas to electricity when generating heat for industrial processes, he added.

Berlin was in November thrown into a budget crisis after a court struck down a €60bn climate fund designed to modernise Germany's industry and speed up the transition to green energy, deeming it to be in breach of the country's strict rules on government borrowing.

Müller said the court ruling had made financing for climate protection measures more difficult, adding that Germany still needed an "investment offensive" to achieve long-term goals to reduce the use of fossil fuels, including the rollout of hydrogen pipelines and improvement of electricity grids.

The think-tank added that emissions from construction and transport industries remained largely unchanged in 2023, following several years of failure to reach reduction targets. The lack of emission reductions in the two sectors meant Germany was expected to miss EU-wide goals as set out under the so-called Effort Sharing Regulation, Agora said.

Nonetheless, the 21 per cent drop in emissions last year followed the sharp decline in coal-fired power generation including from highly polluting lignite.

At the same time, almost half of electricity imports came from renewable sources, mainly hydro and wind, and another quarter from nuclear, with a 5 per cent increase in domestic renewable energy thanks to record solar and wind production, taking the share of total renewable energy to more than 50 per cent for the first time.

Comment: See also: France: Record number of companies went bankrupt in last six years

Incredible: German electricity demand has fallen to the lowest levels since before reunification in 1990, as its economy falters.

Germany intentionally turned off its extraordinarily cheap and reliable baseload nuclear power, rapidly, during a generational energy crisis.

Putin didn't make them do it.

America didn't make them do it.

Even German public opinion has turned dramatically back in favor of nuclear.

German leaders made this choice, to turn them off and keep them off.

Look at these graphs of annual electricity. It's like Germany is committing WW2-style bombing raids against its own infrastructure.

If Germany were electrifying, for either climate or growth reasons, then we would expect electricity demand to grow, not fall.

We should be seeing all time records in electricity production and demand, not the lowest numbers in over three decades.

Now electricity is too expensive for many industries to justify using for expanding or even maintaining production, so electricity demand is dropping.

But Germany's own generation of electricity is plunging even faster than its demand is, turning Germany from a net exporter to a net importer of power.

Many commenters have celebrated the falling energy costs in Germany for this year and next. But those falling costs are coming along with falling demand for power, not increasing demand.

And costly renewable subsidies are no longer paid directly on power bills, but instead from the national budget, lowering the apparent cost of power even further, which should be stimulating demand.

Yet electricity remains so persistently expensive relative to pre-crisis years that, in combination with expensive natural gas, it just isn't worth it for Germany's major energy consumers.

Germany's courts have, for now, rejected adding more and more subsidies for energy production infrastructure to be paid for by national debt.

Even though this is a crisis for Germany, the courts seem wise in rejecting subsidies for expensive new energy when cheap nuclear plants could just be turned back on.

Leading opposition parties have already stated their intention of restarting Germany's nuclear plants should they win power.

This would take about a year each, but each nuclear plant would prop up a meaningful fraction of Germany's bleeding industrial sector.

In my view, there is no longer any other budget-neutral or budget-positive energy move available to German leaders, without destroying Germany's climate agreements to turn on lignite coal full blast.