The Power of the Economy in Addressing the Climate Crisis
Okay, good morning everybody and welcome. It’s really nice to see a lot of familiar faces, a lot of new faces. Thanks for coming out this morning. my name is Sandra Matz. I’m a Professor in the Management Division here at CBS. I also am the Co-Director of the Center for Advanced Technology and Human Performance, which is co-sponsoring this event together with a Green Business Club and The Hub at CBS. I’m gonna try and keep my opening remarks very short ’cause we have a fascinating session ahead of us. But I do wanna say thank you to Dr. Habeck for joining us today for our conversation on the role of business in society in the context of the climate crisis. And I don’t think he really needs an introduction, but there’s a few things that I wanna highlight. So he is the Vice Chancellor of Germany at the moment, Minister for Economic Affairs and Climate Action, which I think even the combination, the fact that those two topics are coupled is interesting in its own right. He has been a party member of the Green Party for many years, has served as the party’s co-lead between 2018 and 2022 and perhaps most importantly, he’s been a true champion for climate action not only in Germany but really beyond. So thank you for that and we’re very excited to hear more about your journey, your experience in this context. I should say that the topic of climate change is very near and dear to my heart personally, having grown up in I would say one of the most sustainability and climate-friendly cities in the world, Freiburg, which I actually learned that you spent some time studying philosophy at. But it’s also a topic that I think Columbia Business School has really heavily invested in when it comes to climate-related curriculum research agenda. And you might call me biased, but I think it’s really by now one of the leading institutions, Ivy League business schools when it comes to really making climate-related topics a priority in the context of business. So we’re very excited to have you here and to have a discussion. I’m gonna hand it over in a second for Dr. Habeck to give some remarks here at the podium for a few minutes before we then open the floor and we start having a conversation on the topic that will be moderated by Chris Scanzoni, who is the President of the Green Business Club here at Columbia Business School. And there’s gonna be opportunities for the audience to ask questions and as we just discussed, also for you to ask questions to the audience. So we are very excited. And finally, I really wanna say thank you to all the people who made this happen today. And I think when they asked me to organize a chat with the Vice Chancellor, I’m like, that sounds easy enough. Turns out to be a lot more complicated than I had expected. So big shout-out to Kevin Ericson at The Hub and Mariella Clayo from the Consulate who really helped pull this together. And now without any further ado, I would like to hand over to Mr. Habeck to just kick us off. – Yeah, thank you very much. I’m, I don’t know have yeah, you applaud. (audience applauds) I have the possibility between three mics, this one, that one and this one. So at least, I’m standing here and someone will decide which microphone is the right one while I’m doing my speech and delivering some thoughts. Thank you very much for having me. You heard what I’m doing for a living right now. I’m Minister for Economic Affairs and Climate Action and that’s a part-time job. Also Vice Chancellor. Thank you very much, Professor Matz, for having me here and organizing this conference or this discussion. Maybe I can start with a thought, which I can’t really answer, but as Professor Matz welcomed me outside the building and I brought Elga Bartsch with me. She’s a Director General for General Economics. That is the famous department in my house where social market economy, the special German model of economics was designed, by two strong women. And the question when I went out of the car was on International Women’s Day, do women do economics differently than men? I really don’t have an answer, but that might be worth a second thought or second discussion. Elga, thank you very much for helping me do this job and Professor Matz, all the best with all the discussions in economics. So maybe I start with this idea of social market economy because this leads directly to my political approach. Social market economy means bringing two things together that are not nationally, on the same page, social justice and growth, market-driven economy and distributing the wealth is considered as two poles and not necessarily on the same page. But this was what made Germany successful in the past decades. And I would say the same model was copied by the European Union then and is now the general attitude of how we think in Europe the market should be organized, distribute the gains, the wealth to the people and with that, stable democracy. The same is now important for climate and economics. And therefore as Professor Matz pointed out, the differences between climate action and economics, economic growth and welfare, should be overcome and thought together as one principle. That is still not normal, not usual, not in Germany, I guess not in the US and not in the debate. Maybe in your studies, I don’t know where you’re standing there, but normally climate action is, or many people think climate action is hindering economic growth and economic growth is a naturally destroying climate and the nature. So my job is bringing both together and I think and I hope I can show you and argue for that, we have made tremendous success on the way of doing that. That is the broad picture. In this broad picture, something has happened and I think it’s important as a German Minister for Economic Affairs I start with that. Russians, Russians’ war on Ukraine. So we have some problems in Germany and in Europe because other than in the US, this war is directly in our neighborhood. It is not an abstract war somewhere on another continent. It’s inflicting our economy and market and of course the lives of so many people very, very directly in Germany. Especially in Germany you can see it directly. We got half of our natural gas supply from Russia through Nord Stream 1. And some of you may know that the second pipeline system, Nord Stream 2 is, was ready constructed before the war happened and was on the edge of being, getting online. Then we would get 120% of our natural gas from Russia, meaning that we distributed the gas also to other countries, Austria, Czech Republic. So, complete dependence from Russia was the situation when I went into office. Then in June, latest in September ’22, that was cut off by Putin, by Russia. Half of our hard coal was coming from Russia. One third of our oil imports were coming from Russia. And this is all gone within months, this was all gone and the economics predicted negative growth if this would happen of minus 5, some said minus 10%. That has not happened. The energy situation is stable. We now have gas prices at the level before the war and the also the prices for electricity are going down very, very fast. But still the economic situation is not satisfying. We have a lack of growth. We have high, we had high inflation as in the US, though for different reasons. As far as I understand, the inflation in the US was caused as the result of the post-COVID spending programs and to incentivize consumption again. In Germany and in Europe, it was clear the result of Russia’s war on Ukraine and the high energy prices which inflicted also then agriculture and the prices for food. But now it’s going down, the inflation rate is now 2.5%. So I think in, with the course of the year, as in the US, we will have overcome this difficult situation. That is the economic situation in Germany. The big picture, bringing growth, economics and climate action together. In this big picture, this concrete and very dangerous and challenging situation because of Putin’s war, the cutoff of the gas supply. So we had to do two things in the past, secure energy security, bringing prices down, bringing inflation down, and still think about the broad picture, bringing renewable energy forward. And this is what has happened in the past two years since I went into office. We have an increasing rise of renewable energy. The grids are now, after 10 years of discussions and more or less delayed discussions, no decisions were made, are now under construction. We are using the renewable energy also to decarbonize the other sectors like mobility, electric vehicles and the heating system, mostly with heating pumps and produce hydrogen, green hydrogen to decarbonize the industry processes. Steel for example is now, I guess the same in the US, mainly produced by burning coal. And the future will be that we use induction ovens and you use hydrogen, you could also use natural gas, but when hydrogen is available, you use hydrogen and then you have green steel, climate neutral steel. This is already way underway. We have now in Germany an average of renewable energy in our electrical, electric system of over 50%. The aim is that we have 80% in 2030, so an additional 30% in the next six years. That sounds like a lot, but it’s doable. It’s doable because the potential of windmills, for example, and the prices for solar panels have gone down and the potential for windmills have gone up. So actually we have to build 10,000 new windmills in Germany as one windmill has the capacity of something around five megawatts. So some have seven, some have four, but let’s say five, and we need 50. That’s 10,000 windmills. And the good thing is we will shut down or take off 10,000 windmills, smaller ones that are now 20 years old. So actually the biggest job I have to do is bringing 10,000 old, small windmills out and 10,000 windmills in. So you see, it’s a challenge but it’s not that it’s impossible. I mean, if we can’t do that job, how shall we do the biggest jobs that are lying ahead of us? It is possible and there’s a strong commitment from my side and also the people working with me in the Ministry to do it and to do it now because time is fleeting. That is where we are standing in Germany. Now having in mind how difficult the economic situation after the loss of roughly speaking half of the energy supply coming from Russia is and the high prices and the inflation, you see how big the challenge is in Germany. Especially in Germany because other countries, Spain, France, the Scandinavian countries, they didn’t have this high dependency on Russian gas. They have LNG ports and imports from the US or from Qatar or somewhere else. We don’t have that. We had no LNG infrastructure in Germany and we build it up in half a year’s time. So this is also I think speed world record for building LNG infrastructure. But of course we have to pay a price and the price was high energy costs. As I mentioned before, they are now going down, but still there’s a difference between the German situation and the US situation. And the difference, and this is what I brought with me to you actually, my questions or my point of discussions as you are maybe the next generation of American leaders, so I would like to use the opportunity to maybe speak to some of the next ministers for economics or energy of the US, or maybe some advisors or maybe some journalists who will write about it, bringing our discussion, focus our discussions to the three points that are maybe dividing the German and the European discussion. The first one is the cheap energy in the US is also coming from not having a CO2 taxation. And we have it. I mean if you look at the CO2 figures of the US, you are sorry to say per capita one of the highest CO2 emissions worldwide, higher than China. So I hear a lot of talks and I know that your government had made the decision to become climate neutral, as Europe in 2050, but you are far, far away from that. The CO2 emissions, the ton per capita in the US, something around 16. In Germany, it’s now 10. 10 is not good enough but we are on the path as mentioned of bringing it down and bringing it down now. 2050, when the US as you wants to become climate neutral is in 26, 25 years. So this is tomorrow. Politically speaking, this is tomorrow, having in mind how long it takes to build an infrastructure. And sorry to say you’re not on path. The US is not on path. Germany was not. I brought it on path. And having no CO2 taxation and something about 90% fossil energy in the market of course means your cheap energy is cheap because you’re not on path on getting the climate goals fulfilled. I hear a lot of talk about CCS and CO2 usage, but the truth is that the technique now available brings the price for energy four times higher, three to four times higher. So if all the natural gas used in the US right now and the price for the megawatt hour is something around 15. So, it’s cheaper than in Germany. Yeah, that’s true as you are producing it and you have, don’t have to ship the LNG, but if you would use CCS as climate neutral molecules right now, you would have four times higher energy prices in the US. You don’t do it right now. I know in the future there are plans to do it and the Inflation Reduction Act is tackling the price but you don’t do it now. So your economic advantage is not having a CO2 taxation, not making fossil energy more expensive and not using CCS. So this is the first difference between our economic spheres and continents and the consequence is that I can’t see that the US is on the way to climate neutrality. Your measures are not enough. And in this sense, you can argue that the climate crisis, which I think we are all aware of, I think I hope at least in this room, nobody doubts that there’s a manmade climate crisis, is a market failure. The market is the external costs are not in the prices. So that’s the first point I’d like to have you in mind or to discuss it at least. The normal discussion I have to do in Germany and also when I meet the business partners here in the US is, okay, in Europe the energy prices are high and in the US they’re low, but they are low for a reason. You don’t bring the internal costs in the prices. Secondly, the debt rate of the US is by 122%. In Germany, we are now going below 64, so half of it. 1% of German GDP is something about 40 billion. So if we would have 1% mere potential of giving incentives to the economy or taking the burden of high energy prices off the economy, I wouldn’t say we would have, wouldn’t have any other problems, but we could solve a lot of problems. As far as I understand, both sides of the political debate in the US, Republicans and Democrats agree on rising the deficit by minus 5% roughly speaking each year. So you are on the path up to 200% in the next years as far as we can see because the programs have a longer lasting effect. We on the other hand are on the path of bringing our debt down, minus, down to below 60%. So you see, I mean this is often kind of a religious question in economics, how do you value debts and should you in times of crisis or times of need spend money or save money? You see where I’m stand, I get, I hope you get a feeling where I stand. Politics is not about religious questions, it’s about solving problems. And we have a problem. We have a war in our neighborhood. We have to do and tackle the climate crisis now and not in 10 years. And if we create a vicious circle that we now do a lot of spending in grids, in renewables, in decarbonizing infrastructures, and we put the burden of the spending on the now working generations, then we do exactly the opposite that we would do. Not making a successful green economic model, but making the energy costs so high that nobody wants really to invest. So if you think about it, we have two different options, not doing the investments necessary or at least sharing the burden with the future generations. But these CO2 taxations is the first one and the second one where we don’t have a level playing field is the way of thinking about money. And my point is maybe the US is on a way of spending too much money and maybe Europe and Germany especially is on the way of spending too less money. But there’s no level playing field. So either way, we have to solve this problem if we want to have a common economic sphere. Otherwise, there’s no level playing field. And this is my third point, common economic sphere. If you look at the trade figures of Germany, especially as I’m Minister for Economic Affairs in Germany, in the 1980s, the trade budget of all the Western democracies were more or less the same. In Germany, in the US, in the European average. And then after 1990, Germany took off. Our growth, our wealth depends on 50% on trade. So we are an export nation. We bring our goods worldwide, 50%. Even China has only dependency of 20% of its exports to others, to its growth. So we are really dependent on the functioning globalization, Globalization, I remind you, I’m a member of the Green Party so I know that there was a lot of discussion about globalization is bad in the sense that it has negative spillover effects for poor people or for the environment. I think we can overcome it, as I am convinced that bringing climate action and economics together is like social market economy, is creating a third way. So I believe that the globalization has its right and it has shown that it has a potential. The promises that a globalized trade or economy will bring wealth to more people than only national economies has been true, has been fulfilled in a way. You see that the health situation, the food situation worldwide is better than 30 years ago. On the other hand, we have, and I have the feeling and maybe some knowledge about it, we have shrinking democracies, liberal democracies worldwide. And apart from the question which government or which party is ruling or which problems are to be solved, it is a global tendency that democracies are shrinking. So maybe there’s a connection between the success of globalization and shrinking democracies. And if that was the case, we have to find a new common ground, common ground in the sense that either we leave it like, we leave globalization in a way. Then we would, especially for Germany, have a problem. But my political argument, this is more about security and real security is the US would have a problem in the same way. We need strong economies on both sides of the Atlantic as long as we believe that we share the same common ground, same values, liberal democracies, freedom of speech, equality of people. And that is under pressure. So the problem now, the concrete problem is that under these pressures, all ripe economies and especially the US one have a strong tendency to create local content rules to protect the markets, to use the frame of energy security, which I use myself, especially in with regard to China, to produce their own lines of critical goods, explore critical minerals. Being not naive, and this should, we shouldn’t be naive, especially after our experience after Putin using energy as a weapon, being not naive is not the same as having a tendency to think in small categories, in small boxes. And these thinking in small boxes is, sorry to say, also part now of what I see in for example, the Inflation Reduction Act. It’s directly aiming to bring production away from other countries to the US. We bridge that. I have now two years’ work behind me with my colleagues of your, of the Biden administration. And we have found common grounds to create something like an industrial trade sphere or a trade agreement in a way. We’re not ready, but we are well underway. But the tendency is there in the Biden administration, before, in the Trump administration, also in the Obama administration. We in Germany, I personally think this is the wrong track. But under the pressure of the reality, we are now doing exactly the same, creating in Europe subsidies for production lines in Europe and in Germany. So there’s no trust between the economic spheres and also the economic leaders in the US and in Europe. And if we are following that path, we will split our economies instead of bringing them together. As I mentioned before, shrinking democracies, the sheer number of liberal democracies is going down and therefore I think that would be a dead end that would lead us in a not stable political situation. So I think we should rethink and rebuild our partnership of a kind of common economic sphere on both sides of the Atlantic. And this should include of course partners who are willing to participate. So this should not be exclusive between the US and the European Union, but all the other countries, the Southern Hemisphere, Brazil, South America, Africa, if they want to, will say, "Okay, we stick to the same rules," they’re invited to join us. But we have to restart this idea of a common global ground for economic growth to overcome a situation, that globalization is a threat of liberal democracies. So the three points I’d like to mention, just to summarize it, CO2 taxation, think about it. How would you like to reach the climate goals and don’t you have a carbon leakage in your system? Secondly, fiscal roots invented 30 years ago, at least in Germany, in the US, are they fitting to the time we are in with the challenges? And then how do we think globalization or common markets between the US and Germany or the European market as we have one single market. That’s where I’m standing, that’s what I’m discussing with the political leaders in the US and also in Germany. Sometimes the discussion is not very fruitful because the tendency to repeat what you have thought 10 years ago is always there. But if, when times are changing, I think thinking is, should also change. And as I mentioned before, politics is basically not to repeat what you thought is right 30 years ago, but to cope with the reality as it is, as you find it. Solve the, sorry about my French, solve the fucking problems we are having now and not distribute them to the others in the next generation. If this is the political model that you say well, I had a wonderful four years in my political career and have actually done nothing, but it was very convenient, so please go on and overtake and please, please vote for me again. You have the business model is to give others the guilt for not solving a problem, then I have bad hopes for democracy. Vice versa, I think we should work for responsibility in the time we have and the time we have should be used as efficiently as we can. Thank you very much for having me. (audience applauds) – Thank you so much for being here and sharing those remarks. On behalf of Columbia Business School, it’s an honor to have you here. I’ll get us kicked off with a single question, but I encourage the audience to start preparing your questions along the remarks that were just made by the Chancellor. You are at the business school and. – Vice Chancellor. – Vice Chancellor, yeah. My apologies. You are at the business school and we talk a lot about market incentives here. You heard it in the President’s speech last night but there is this discussion about the rise of industrial policy with the Inflation Reduction Act and the European Green Deal. Our discussions here at the business school revolve around the market. Are the private sector incentives not sufficient to stimulate private sector action? Why does the government sort of need, is the climate problem unique in that it requires state-driven action as well? – Well, there are two reasons for subsidies, public money. The one is good and the one is not so good, but it is still a reason. The first one is if you want to create new markets, for example, green hydrogen, and there is no green hydrogen, or at least not enough, and the price for green hydrogen would be, as I mentioned with CCS, it’s more or less on the same level, four times the price of natural gas. So there is no incentive in doing it alone in the time given. If you say, okay, let’s wait another 200 years, maybe then the price for green hydrogen is going down, but we don’t have 200 years to wait. So it has to be now, and nobody really has a business model. That is a good reason for financial support, subsidies, to create a market the majority of the people have agreed on that as necessary, climate neutrality, in a way. We have done it before with batteries or electric vehicles. And now as this is a business model, we can of course bring the subsidies down. So that is the good reason and it’s a normal way, I would argue, of using public money to create something new that has the political agenda majority behind it. And then second one, a bad one I would say, jealousy about the others. So they have some economy, and this is, of course has a side path. There might be also good reason, which I mentioned before, economic security. So think about the world as it is and think about semiconductors. All of the, or not all of them, but a lot of semiconductors are coming from Taiwan and the global situation is fragile. So I myself would argue, yeah, well this is a good reason to produce semiconductors in the US and in Germany and in Europe, which is what we’re doing. So, but because the production is not there, the same goes for critical minerals, because it’s cheaper in Taiwan or in China. If it would be cheaper in the US or in Europe, it would be in Europe. Otherwise, capitalism would not function. It’s not cheaper there. If you want to bring it to your economic sphere, you have to give some incentives. Of course, you can argue and say no, this security reason, I don’t buy it. I mean, we should believe in peace worldwide and stable supply chains all the time. But the past five years, COVID-19, Russians’ war, now the Red Sea and the Houthis, they teach us others. So I think that is the reason too. And then there’s the third one, others giving also subsidies for producing some goods. And this is the bad one, but this is happening right now. Everywhere I see subsidies to suck production into your economic sphere or room. And if you are Minister of Economic Affairs, you can’t just let it happen. So I, this is the reality of my daily life that some companies coming to me and say, "Well, I want to build a production line for electrolyzers." And I say, "That’s wonderful, I need electrolyzers, do it." "Yeah, well there’s a problem. Country A is offering me 100 million, country B, 150 million and the other, 160 million. So if you give me 200, I come to Germany." And I say, "Well, hmm, I don’t have 200." Yeah, okay, that’s nice then, no problem for me. I go to the other country. So then I give to them 200 and I know then they go to whatever country, A, B, C, and they say, "I have 200 from Germany. What about raising your offer from 150 to 250?" And that is the reality. And this is of course bad. Still, we are in the game. The US and Europe, we are doing exactly that in some part of the economic sphere. And this is weakening us. I mean, as I mentioned before, from my point of view, money is there to solve problems. It had not a value, a political value in its own, but we have so many problems to solve. We have to increase our military budget. I’m from the Green Party. I really could think of something better to spend money on. But this is the reality, as I mentioned before, the reality we have to cope with. So this is stupid in a way, and therefore we are trying to bridge this subsidy race or some say subsidy war and say, let’s have a level playing field. We don’t give more subsidies in Europe than the US is doing. We can do, we can give some subsidies, but we are not getting stronger out of this race for subsidies if the company A goes to country A, B, C and ask for more and more money. So, but that, the first one and maybe the second one, economic security is a good reason for public spending or subsidies, from my point of view. – Thank you for that. Any questions in the audience? – [Bruce Usher] Hello, I’m Bruce Usher, Professor here at the business school, and thank you for joining us today. You informed us that you’ll be replacing 10,000 small wind turbines with 10,000 more powerful, 5 megawatt wind turbines. It’s fantastic. We could never do this in the US because it’s almost impossible because permitting requirements to install large wind turbines without the local communities’ NIMBYism preventing this kind of construction. What lessons do you have for the US? How do you accomplish this in the Germany? How do you avoid this NIMBYism issue? – Yes, thank you for the question. It’s also a political debate in Germany. It’s not like that everyone is applauding and say, "I want a windmill." Of, and of course windmills, they are big infrastructure, vertical infrastructure, it changes, it has an impact on the environment. Of course it has. It’s changing the landscape in a way. It’s changing the room of your memories as a child. So I understand that there’s a cultural and maybe ecological skepticism about it. But I would argue on for the ecological track and for the economic track with two arguments. First, the success. I’m coming from the northern part of Germany, Schleswig-Holstein, and we have something like 3,000 windmills. And the success was there. I mean there’s a lot of wind, it’s directly at the coast, but it’s, they are owned by the people. So then the procedure goes like this. There’s a farmer and saying, "I have interest to increase let’s say 10 windmills. It costs one mill, maybe cost 3 million euros, so we need 30 million euros. Who wants to participate?" And then you draw circles, let’s say 10 circles around these potential wind farm. And you ask your neighbors, "You want to invest?" But you cap it. So if there’s a very rich neighbor and say, "I buy it all," this is not possible. But let’s say you can give 10,000 euros and then we collect money, money, money. And if you’re at the 10th circle and we don’t have enough money, we start from the beginning again until we have enough money and the rest is a loan by the bank. So that is, so then it makes a difference if you look at the windmill and with every circulation, you earn some money, or if you look at the windmill and with every circulation, some hedge fund’s earning some money. So if it’s the people’s windmill, that is really a success story. And of course now we have changed a lot of laws. The energy could be used directly in the production lines around these wind farms, directly going through the households. So if your energy costs, you’re earning money and the energy costs are going down and the kilowatt hour, the windmill produce something around five, maybe seven euro cents. And this is really, really, really cheap. And if you can use it directly for production or for loading your electric vehicle, that’s a success story. And even in the countries south of Germany, Bavaria’s famous for not wanting, want to have windmills, the economics, the businesses, they are asking, they are urging the government to do it like we are doing it now. And the result is even major investments are going in the areas where there’s enough green electricity. We have a huge investment of a battery production line. It’s called Northvolt, Swedish Company. They invest for four to five billion euros and they searched all over Europe where the best place is. And they went to a small town in my home country that has never seen an investment like this. It’s a rural area. It’s agriculture, actually. And the train connection to Hamburg, which is the next biggest town is, it’s a disaster, actually. So there’s no reason to go there actually and invest there except for we have green electricity that is coming out of our ears. And that is what’s attractive for them, cheap prices, green energy, so they can argue our batteries are not only for green mobility, but they are produced green. So this is coming now and everyone is seeing it, that this is the new success story. And the ecological problem for me, it goes like this. When I graduated in school, we had in this country of mine, we have, had one sea eagle, one. And this was like a precious jewel. Everyone there was, in holidays you could have like a week in a camping and watch the sea eagle that nobody steals the eggs. And this was very, very, this was a precious species and we had zero windmills. This was 30 years, 35 years ago. No windmills in Germany, no windmills in Schleswig-Holstein, and one sea eagle, no windmills. Now we have something, as I mentioned before, of 3,000 windmills and 150 breeding sea eagle pairs. So there must be a solution. It must be possible to do that. And my argument is of course if you have only one sea eagle, it would be a disaster if that sea eagle would be killed by a windmill and windmills can kill sea eagles. Yeah, that’s true. But if you have 150, well, we can also cope with 149 and maybe next summer. I mean, for the individual sea eagle, this is a problem of course. (audience laughs) If he or she’s dead, but for the species it’s not. So our rules, our regulations are coming also as so many rules, fiscal rules and everything from times where the problem was different. Now we have, it’s called species protection, not individual protection. So if we protect the species, we maybe not build wind farms everywhere, but as long as the population is rising, we can increase windmills. And now of course the technique is developing, now they have radar systems on the wind farms. I don’t know if you heard about it or if you’re familiar with it. So they can, this is artificial intelligence. They can see of the shadow of the bird of, in five to 10 kilometers distance. Oh, there’s a sea eagle coming and it’s flying in our direction, now we slow the circulation of the wind farms. And the problem with the sea eagles, you know, I’m talking too much about sea eagles and windmills, I know. (audience laughs) This is an economic debate. They, the young birds, the young birds have no experience with that, with the speed of the tips of the rotor blades. So they try, it’s like young people, young human people, they try something new and they say, "Okay, let’s fly through the circulation." But this is something like a speed of 300 kilometers the hour, and then. (Dr. Habeck whistles) They are hit. The old ones, they don’t fly to that. So the, if we, if we have, if you use this radar and slow the circulation down to 100 kilometers the hour, that is the future. So you have an argument against all the other arguments. You can build wind farms in the US as well. – [Bruce Usher] Thank you. – [Person Off-Camera] What’s your view on the natural gas as a transitory fuel in the energy transition? – Natural gas in the US? – [Person Off-Camera] It, no, natural gas generally in the energy transition as a transitory fuel. – Yes, yes. Well, in Germany we need natural gas also for the production of electricity right now. And in the next phase, as long as there’s no hydrogen available, natural gas will push out coal. Also market driven, coal, of course the production of coal, lignite coal, is cheaper than natural gas production, especially if you chip it. But the CO2 taxation is taken care that natural gas is becoming cheaper than coal. So this is the next, the period of the next 10 to 15 years. And then because we have the CO2 regulation and taxation, I would say at the end of 30, of the next decade, maybe something around ’38, it will be cheaper to use climate neutral molecules because then the you know, it’s a market system. Yeah, the CO2 taxation is you have to buy a certification and we reduce the certificates according to our line becoming climate neutral. So you can use CO2-intensive energy, but it will become more and more and more expensive. And somewhere at the end of the next decade there is the breaking point. Otherwise, we can’t become climate neutral in 2050. So that is the transitional period and it has an end date. So the problem I, we have to cope now is new LNG is coming to the market. The sellers want to have long-lasting contracts. They are asking for 20 years’ time, but the expiration will start in, let’s say, ’28. ’28 to plus 20 years is 2048. And Germany wants to become, has to become, it’s a law, climate neutral in 2045. So this is not working. So the problem is a lot of LNG is coming to the market and we don’t, we need now some LNG and then it has to go down. What I’m trying to negotiate with the companies now is they buy the energy, not LNG, and different market for hydrogen, but energy and the, then you have a long-lasting contract for the energy demand. But the companies, the LNG companies have to deliver some other form of molecules energy. That could be of course blue hydrogen, decarbonized natural gas, as long, this is also not really climate neutral use. You can reduce the CO2 percentage by minus 80% with a technique now available. But may, minus 80 is good, yes. It’s not nothing. So there might be a phase natural gas, LNG, blue hydrogen, green hydrogen. This is not black and white. There is a mixture all in between, but this is what I’m trying to negotiate. And this means of course that the now fossil companies, if they want to have a future, have to produce climate neutral molecules in the future. I have, I know they have understood it, but still there’s sometimes some laziness in the market and the hope that maybe some other government will come and they won’t believe that climate change is manmade and there’s any problem at all. So this, it’s a political issue. – [Person Off-Camera] Then I might continue here. Future Chancellor Habeck, thank you very much for your talk today. I’m a student of environmental science and policy and I read. – Can I just, because there’s person whom I just have to say I’m glad with the job I have. (audience laughs) It’s challenging enough. – [Person Off-Camera] I wanted to refer from the Federal Audits Office report from yesterday, which has led to some turmoil, the Bundesrechnungshof and which might have summarized some challenges some German voters see, but maybe also some US citizens see there. How is Germany planning to address these challenges in the short and the long term? – Well, for the ones not so familiar with the German political debate, maybe you have to explain what the Bundesrechnungshof is, or I do it, but that might not be a neutral. (audience laughs) – [Person Off-Camera] I think you gave some comments to this this morning, so maybe you want to continue. – Well there, we have a kind of agency that is controlling the government in all areas. I don’t know how many people there are, but they look into all the budgets and all the economic figures of all the governments. And in a unregulatory period, they have special reports on everything, healthcare, and now in energy. And the energy study yesterday was brought to the market and it said the prices in Germany, the energy prices are too high. We are too slow with building the grid. We are too slow with a increase of renewables. And that was true until I went into office. So this is a, they regarded the past and the figures, if you look into the study, are showing the problem from 2000 to 2020 or 2013 to 2022. And that’s true. I mean, the story in my ministry goes like this. The grid infrastructure is problematic as windmills, building windmills. Nobody really likes electricity grids. They are, they look very ugly. I understand it completely. So there was a lot of opposition against the grids, but of course we need them to distribute the renewable energy. So when the summer occasions begin, all the politicians went to their home countries and there were some elections somewhere all the time. And the people who would get the permitting for the grids afraid, were really afraid of August. August was famous for falling back in the permitting process because all the politicians went back out of their summer vacation say, "Oh minister, hmm, there is a problem. We have a election in my home community or country. And you know what? There is a grid that should cross my country. You can’t do it. You can’t do it now. I wanna win the election." And know what? The minister said, "Yeah, I won’t do it." So we, the grid plan we made in Germany was made after Fukushima and the German decision to phase out of nuclear energy. And it should be ready with the last phased-out nuclear power plant in 2022. And we are not ready. We are now, we will be ready in 2027. So the Bundesrechnungshof, this agency is right, there was a problem. But what we have done now is doubling the speed of permitting, doubling the speed of building the grid, doubling the speed of building renewables. We have written so many laws, pushed out so much bureaucracy. Now, everything is happening. So yes, it is an interesting study for the past, but not for the future. – Hello, thank you. My name is Louisa, I’m a fellow philosophy student from Munich. I wanted to ask, you already touched upon it, about the threat of a new administration with someone leading who doesn’t necessarily believe in the manmade climate crisis. But when you look at different policies, even in the Biden administration, you could argue that America is still put first. And a lot of people say that the policies haven’t really changed regardless of who’s leading the US. So in your talks you’re having now, how do you prepare and how do you personally, how do, how does this government prepare for possible administration change, especially when it comes to climate policies for Germany and the European Union? – Well of course, elections make a difference. That is really obvious for Germany, of course, as I try to explain all the time how I try to think politics differently and what I at least have tried to do with renewable energy and energy security and was not done before. So politics, elections make different politics. As far as I can see, this is also true for the US. The Inflation Reduction Act is a huge investment program for all forms of green industry. That was not done before. The problem is that might be lead to climate neutrality, it might not. So it might be too slow. That is true. Therefore, I pointed out that the debate about the energy prices, it’s, I wouldn’t say it’s not fair, but it’s not the level playing field. So I say, as I explained when we talked about hydrogen and the transition from LNG to hydrogen, I think you have to create a market. Market means it’s not anarchy. There are rules and the rules have to fit to the problems we are trying to tackle, and redesigning markets. That is, what you’re actually discussing and learning. But what is economics about? As long as we believe in markets, markets have a form, they have a structure, they have rules. All the time, politics are, politicians are arguing about which rules are the right ones, social rules, ecological rules, climate rules, redesigning markets. That’s what economics and politics is about. So I would argue that we have redesigned our market, but of course for this has a price, or this has a consequence and maybe the market design that the subsidies are there. The market design in the US is not really there where I think it should be. Sorry to be so blunt and well, if someone becomes President who does not believe in the threat that climate change is bringing to humanity, I mean, we are talking about climate crisis. It is not a climate crisis. The climate has no crisis. The climate is just the climate, is the, it’s the sum of the phenomenas in the weather. So even if it’s four or six degrees warmer, it’s still climate. But human mankind, humanity will have a climate, will have a crisis. We will see it everywhere that we will see fights, maybe wars about water, people fleeing from their homes, a lot of refugees. Then you have to make a decision that you, do you let the refugees in or do you have high walls, fences, whatever? So it is not about the climate, it’s about us and the liberal democracy or life and peace and future prospects. So I would really strong argue that apart from the terrible conflicts we’re having, Ukraine, Middle East, Gaza, the conflicts between North Korea, Taiwan, China, so the Chinese Sea with all the terrible possibilities there, the real challenge for our political generation is tackling the climate crisis. This is the historical challenge and we have to follow this path even if we are distracted from the concrete problems there that are also there. So therefore it started with the, with this horizon, which is the real task. And then of course there are disturbances all the time, but we can’t let go of in a way reducing the threat of the climate crisis, which is a humanity crisis. Otherwise, I think we would have failed as a political generation. – [Elke Weber] Hi, I’m Elke Weber. I’m a Professor at Princeton and also Einstein Foundation Visiting Fellow at TU Berlin. I wanna bring a social perspective to our discussion about economic and the technological perspectives. And you know, the Ampelkoalition climate laws have been deeply unpopular in Germany, from the (speaks foreign language) to the reduction in fossil fuel in diesel subsidies you know, for farmers. What anything have you learned from those public reactions maybe about the timing, about the communication of climate and economic policies? – Well, I’m learning all the time, but if there’s one lesson apart from the political debate of if this was really necessary, I mean the, for the ones not so familiar with German politics, after COVID-19, the German government used 60 billion euros that were not spent to put into a fund, which should help the economic growth that was weak after COVID-19. And because I think we have worldwide the most rigid debt brake, the firmest one, the constitutional law said this is illegal. If there’s a crisis, it must be solved with the money in the year the crisis comes to existence. Which is kind of hard to understand because we had a flood, for example, in 2021, no, 20, yeah, 2021, and a lot of houses were destroyed and bridges were destroyed. A whole town was more or less washed away and it is impossible to repair all the houses, bridges in one year’s time. So, making a decision that the crisis must be solved in the year the crisis happened is in a way a very rigid interpretation of the German debt brake. But that meant then suddenly 60 billion were gone and we had to build the budget anew, and then we made some decisions to save money everywhere. And then there was a big demonstration situation from the farmers because also the farmers were we cut down some subsidies for the farmers as well. Apart from that discussion, my learning is that of course it would be better as if we had, if we would have discussed it with us, with the farmers before. The problem is that this difficult coalition we are in is it can’t be done in silent, silence. As my experience is that if we have closed rounds with some social groups, they always become public. And then we would have had the same discussion. But of course it would be better if we have enough trusted rooms, secret rooms where you can say, "I have an idea. It would not, you would not like it, but what do you need to help me making this idea work? Or can you shape this idea? Can we maybe have two weeks’ time to work together on an idea? We need some money, we want some money from your side as well. What do you need not to blow up the whole discussion?" But if the reality is someone else different, it’s not so easy to have these closed group. Everything is on social media, everything is on Twitter or X now all the time. So the lesson is learned, but it’s difficult to live the lesson. – [Julius] Hello, ah, thank you. I’m Julius, I’m from Columbia Global and I still have a question about the windmills that you mentioned. How are you planning to finance 10,000 additional windmills? And then also to scale that question, how are you generally planning to finance energy transitions in Germany? And I think also follow-up question with that is what does it require to upgrade Germany’s electricity grid, which I think is also crucial? – Well, the windmill and all renewables are private finance. Someone is giving money in this, in a way buying and then constructing a windmill. The problem, and it’s, that differs from the energy system we are used to know is that if you have a lot of renewable energy, you have either low prices or none. So if when the sun is shining, we have solar energy out of, well we, it’s everywhere anyway and the prices can be even negative, so you don’t earn any money for your installation. And then the night comes and you don’t have sun and you earn no money. So the problem is if you don’t have a base production of energy all the time, which is normal with nuclear energy, gas power plants, coal power plants, you have this very flexible form and the prices are hard to, in the markets that are designed for a base load energy, they can’t really cope with. So we have to find other market forms. This is what I said, politics and economics are basically about designing the markets for the problems in our time. So the markets designed for coal power plants and nuclear power plants are not the markets that are fitting to renewables. What we are doing or what we have done now is giving feed-in tariffs. So we pay for the kilowatt hour, either even if the grid is not there or you can’t use it. That was helpful in the beginning. Now we are on the edge of doing something new. It’s called capacity market where we have to bring both together, flexible renewable that is coming in massive forms and times where the sun is not shining or the wind is not blowing. But of course if you have, I just mentioned we will produce 80% renewable energy in 2030. That of course does not mean that we have all the time a flat line of 80% renewable energy. There are hours, maybe days or maybe even weeks where we only have 10 or 0% renewable energy. And there are other times in the year where we have 250, maybe 300% renewable energy. So we need to save these energy. We need to produce hydrogen, green hydrogen that the power plants, the new generation of power plants will be running with the energy produced in the times where the sun was shining and the wind was blowing. We need battery storage. We can use hydro energy. So, pump up small lakes, artificial lakes that the water is up when you have enough energy and when you need the energy, you release the water, it’s going down, it’s driving a turbine and then you produce energy. So there are a lot of forms of storage possibilities and completely new market. But then you need to design this market. And this is where we are standing now exactly at the right time. I would say now with 50% renewable energy or more than 50%, they are not in a majority. They are not some extra. They are now the backbone of our energy production, 50% and more. We have 52 or 53, I think. We have over 50% now. This is the right time to design the market according to the major form of the new production of energy, the renewable energy, and the phrase is capacity market, actually. Using the capacity and giving the right incentives that you store the energy when it’s cheap and to sell the energy when the prices are high. And this is, there are times where sun is not shining, wind is not blowing. – [Gernot Wagner] (indistinct) Gernot Wagner, Austrian originally, but I teach climate economics here at the business school. You spoke about the subsidy race and the negative current political implications. Meanwhile, first macroeconomic studies are coming out. Actually, a close colleague here, Conor Walsh here at the business school, German GDP is going up in 2030 because of the US Inflation Reduction Act of 2022, positive, learning by doing spillovers. So right, when (indistinct) shows up and wants 200 million bucks, now that’s a problem. (indistinct) moving to the US. Long run, Germany may actually benefit and maybe asked differently, the carbon pricing in Germany in Europe right now, isn’t that a structural advantage in the long run? Where the US in fact, yeah, we can patch things up in the short run, but Germany looks better. – Yes, I understand. I am really happy, I mean, the Inflation Reduction Act in the political discussion in Germany is, has a negative prefix. So there is a problem, subsidy rates and so on. The, I forgot mentioning that I really appreciate the Inflation Reduction Act because this is a path for renewable energy or renewable industrial production and the commitment from our hydrogen, green steel, batteries is very, very welcome. The only thing is that the local content rules and the hidden subsidies if you produce in North America, they destroy the level playing field, but that the US is urging its industries to become green is highly welcome. And of course, there will be a spillover effect. If you produce electrolyzers, we and you, electrolyzers en masse, they become cheaper and cheaper. And we have seen the same with solar panels. I mean, the first kilowatt hour for solar panels in Germany when the EEG, the German feed-in tariff system was invented. I don’t know the exact number but it, I think it was 40 euro cent or something like that. You know. – [Gernot Wagner] 45, yeah. – 45, yeah, okay. So extreme expensive, but it was only a small amount. Now we are down to four to seven maybe, depends on where they are built. And it’s a world commodity now. Solar panels in, from, could be used everywhere, even in regions where the sun is not really had a high intensity. So a huge success story in 20 years’ time because some country, in this case Germany, paid the starting prices. And yeah, this, if this is happening in the US now with the Inflation Reduction Act and there’s a spillover in 2040, that’s good. And I would like to do the same also in Germany and in Europe. And we’re doing it, giving some incentives to produce the next form, create the next markets. The only thing that I’d like to stress out is the tendency, the world tendency to not have open markets. If every country is giving the same level of subsidies and is doing more or less the same form, not the high, but the form of taxation, that is, I think that would help. Then we would strengthen our economies and not weaken them. And this is bigger than Inflation Reduction Act and local content rules for batteries in the US. This is now where we are standing in the world economy. And I mean in a way, Putin’s war on Ukraine is the permutation of geopolitics. Of course you can do geopolitics not killing people, but geopolitics is thinking in different interest spheres and interest spheres are power spheres and power spheres always means that you have friends, friendly countries or neighborhood, that neighborhood that you consider your own and enemies. And the, I mean you read the news, it is everywhere. So the idea that the market takes over and we, the better place for production and offer and buying and deciding where the most successful economies, that is now really under pressure. And that is a bad tendency not because some countries might lose economic advantages. I mean, in a way you can always argue that the ripe economies, the US economy, the European economies, we also had our advantages because we brought, we had negative spillover effects. I know I have to stop here, but this is only Antonio Guterres. He will wait a little bit. That is, I think that is also true. Yeah, we are buying cheap. We have bought cheap energy from everywhere, Venezuela, Colombia produced plastic and brought the plastic to Indonesia. And that was our success story. So in a way, of course, if the Southern Hemisphere becomes partners and create also their own lines of wealth, that is fair enough and really welcome. That’s the sense of globalization, that everyone increases its, yeah, its wealth. But the problem is now that this tendency, the abstract idea of how we can create a global sphere is now really eating itself in a way because the idea that people participate as liberal ones is so under stress and under pressure that you have nationalists everywhere. And that even if they’re not nationalists in the hardest form of the world, you have barriers and borders and the threat of military intervention all over the world. And I think that is apart from the climate situation, the biggest challenge for our time. And I mean, we need the US being on the right side of history there. Thank you very much for having me. (audience applauds)
Robert Habeck, vice chancellor of Germany and federal minister for economic affairs and climate action, joins Sandra Matz, the David W. Zalaznick Associate Professor of Business at Columbia Business School and CBS Green Business Club Co-President Chris Scanzoni ’24 to discuss various strategies and ideas for tackling the climate crisis.
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