German self-deception on energy costs

Dear Reader,

Far be it for me to presume to know more about fundamental economics than Germany’s leading experts in this field. But I can’t help but feel that the country is engaged in an act of collective self-delusion about the true scale of the costs in changing energy sources from fossil fuels to renewable.

This is not to say that such a transition is not desirable. But failure to be honest about its implications may come back to bite the country in the backside.

One example of this self-delusion is in how experts talks about subsidies for various energy sources.

Reading through the German press this week, one could come away with the impression that the government is handing out tens of billions of euros to the fossil fuel industry.

Leading left-wing economist Marcel Fratzscher wrote a column for Die Zeit titled “Schluss mit den gigantischen Subventionen für Kohle, Öl und Gas” (Stop the enormous subsidies for coal, oil and gas). In it, he claimed that Germany was spending €70 billion a year on subsidies for fossil fuels - an amount that equates to 1.9 percent of GDP.

A shocking number. Why would the oil giants, with their huge profit margins, be entitled to such gargantuan payouts from the state exchequer?