Ifo: Low CO2 price hinders climate investment, reliability is key

German industrial firms are hesitant to invest in climate-friendly technologies due to fluctuating and low CO2 prices, according to a survey by the Ifo Institute. Researchers found that companies typically only commit to such investments when the CO2 price is reliably above 90 euros per ton. Significant price volatility deters investment, even if the average price is high.

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For many companies, predictable CO2 prices make the difference as to whether a new, climate-friendly plant is profitable.

Mathias Dolls, an Ifo researcher, stated that predictable CO2 prices are crucial for many companies when deciding whether to invest in new, climate-friendly facilities. The survey of 830 industrial companies revealed that at a low CO2 price of around 50 euros, most firms reject climate protection projects. However, if the expected CO2 price rises to 175 euros, the decision clearly favors climate-friendly investments.

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The surveyed companies invest on average only when the price is constantly above 90 euros per ton of CO2. With too strong price fluctuations, the companies do not invest.

Gerome Wolf, another Ifo researcher, noted that current European Emissions Trading System prices, ranging from 70 to 90 euros per ton of CO2, are close to the threshold for average industrial companies to begin investing in climate protection. However, a significant portion likely still hesitates. The study emphasizes that reliable political conditions are paramount, as companies avoid investing if they anticipate high price swings, regardless of the average price level.

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Currently, European Emissions Trading prices of around 70 to 90 euros are close to the threshold at which an average industrial company in Germany begins to invest in climate protection, but a large part is likely still hesitating.

The EU's Emissions Trading System, a key climate protection tool, is currently facing intense debate. Proposals include slowing the rate at which the total number of emission allowances decreases and providing more free certificates in specific sectors. German Minister for Economic Affairs Katherina Reiche (CDU) is advocating for economic relief, stressing that the reform must ensure the long-term viability of industrial production and energy-intensive companies in Germany.

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The reform of the EU Emissions Trading System must now be designed in such a way that we can keep industrial production and energy-intensive companies in Germany in the long term.