German energy transition (Energiewende) and what politicians can learn for environmental and climate policy

Abstract

AbstractThe German Energiewende (energy transition) started with price guarantees for avoidance activities and later turned to premiums and tenders. Dynamic efficiency was a core concept of this environmental policy. Out of multiple technologies wind and solar power—which were considered too expensive at the time—turned out to be cheaper than the use of oil, coal, gas or nuclear energy for power generation, even without considering externalities. The German minimum price policy opened doors in a competitive way, creating millions of new generators and increasing the number of market participants in the power sector. The fact that these new generators are distributed, non-synchronous and weather-dependent has caused contentious discussions and specific challenges. This paper discusses these aspects in detail and outlines its impacts. It also describes Swiss regulations that successfully launched avoidance technologies or services and asks why exactly Pigou's neoclassical economic approach to the internalization of damage costs (externalities) has rarely worked in policy reality, while sector-specific innovations based on small surcharges have been more successful. Based on the model of feed-in tariffs, a concept for the introduction of low-carbon air traffic is briefly outlined. Graphic Abstract