Angela Merkel Has One Last Chance to Help the Climate

(Bloomberg Opinion) -- German Chancellor Angela Merkel has aspired to fight climate change at least since she was environment minister in the 1990s. This week, ahead of the United Nations Climate Action Summit, she may get her best chance: On Friday, her cabinet will unveil a sweeping policy package intended to reduce greenhouse-gas emissions. The question is how bold she’s willing to be.

There’s no doubt that Germany, the world’s sixth-largest carbon polluter, needs to do better. At current rates, it will reach its emission goals for 2020 eight years late, and its goals for 2030 only in 2046. The government plans to get the economy off coal by 2038, but that isn’t fast enough. There’s not much consensus on how to improve this picture.

By far the best policy option would be a carbon tax, which would put a simple and transparent price on the dirty gases emitted by cars, homes and factories. Consumers could adjust to this signal by changing their lifestyles or adopting cleaner technologies, while companies would be prodded to reduce fossil-fuel use and make greener products. The proceeds could even be redistributed to taxpayers as a dividend.

Unfortunately, the prospects for such a plan are dim. Merkel’s junior partners, the center-left Social Democrats, would support it. But her own center-right Christian Democrats and their Bavarian sister party balk at anything containing the word “tax” and fear a German version of last year’s “yellow vest” protests in France against higher fuel prices.

Politically, then, Germany may have to settle for the second-best option: an emissions-trading system, also known as cap-and-trade. This would also aim to put a price on emissions, albeit indirectly. Whereas a tax fixes the price of carbon, cap-and-trade fixes the amount of emissions and lets polluting companies set the price by selling and buying allowances.

Although the European Union already has such a system, it covers only a few sectors, such as steel and cement makers. For more than a decade, moreover, the cap was set too high, making prices too low to encourage companies to invest in cleaner technology. As the EU’s largest economy, Germany could try to fix this system by (for example) expanding what sectors it applies to. But as during the euro crisis, it seems reluctant to play leader.

A more realistic plan is to at least agree on a national emissions-trading system that covers transportation and the heating of buildings. This would involve complex new certification rules, require monitoring and audit systems, invite litigation, and take a while to set up. But it would still cut emissions — which is better than nothing.

The worst outcome on Friday would be for the cabinet, composed of parties that loathe each other, to offer a watered down trading system for the sake of compromise. Rumors are circulating to this effect. The idea would be to combine a cap-and-trade system with a price ceiling. If, for example, the price of a metric ton of greenhouse gases were to rise above 70 euros ($77), the government would issue unlimited additional allowances to push it down again. That would require all the added bureaucracy of a trading system while undermining its primary benefit.

As is its wont, Merkel’s government would probably disguise such a cop-out amid a thicket of other proposals. Many of these may be sensible, such as subsidizing electric cars and their charging stations, helping landlords install modern heating, or reducing the value-added tax on train tickets to make them more attractive relative to flights. But at heart, the package would still be a fudge.

And that would be a shame. As a leader in Europe and a potential model for countries elsewhere, Germany needs to get more ambitious about climate change — and Merkel won’t get a better opportunity than this.

Editorials are written by the Bloomberg Opinion editorial board.

©2019 Bloomberg L.P.

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