Project

The transition of the energy system towards climate neutrality requires considerable additional investment in all sectors, including electricity, heating, transport and industry. While key policy instruments such as CO₂ pricing, subsidy programmes and regulatory requirements provide important incentives, they also raise fundamental questions about the long-term financing of the energy transition and its distributional effects. As sector coupling increases the use of electricity-based technologies, the focus is on how financing burdens are distributed between energy sources, sectors and stakeholder groups, and how investments can be efficiently steered through price signals.

Against this backdrop, the Federal Ministry for Economic Affairs and Energy required a systematic, scientifically sound analysis of alternative financing regimes for the energy transition. The focus was on the interactions between financing systems, the economic efficiency of key sector coupling technologies, and the sectoral and social distribution effects. At the same time, the climate impacts of existing energy-related relief and support measures were to be critically evaluated.

The aim was to derive robust action plans for the further development of the financing architecture of the energy transition, based on a thorough analysis of the current situation and future financing requirements. Rather than focusing on comprehensive macroeconomic modelling, the emphasis was placed on targeted impact analysis. This provides transparency regarding the conflicting objectives, incentive effects and distribution implications of different financing approaches, thereby supporting the further development of evidence-based energy and climate policy instruments.

The objective of this project is to develop and evaluate options for financing the energy system with a view to sector coupling. The evaluation is based on both qualitative and quantitative analyses. The effects of the options for action on the economic efficiency of sector coupling technologies and on the burden on different consumer groups will be examined. The effects on consumer groups will be determined from a systemic perspective at sectoral level for the sectors industry, commerce/trade/services (GHD), transport and households (including motorised private transport). On the other hand, individual impacts on selected model consumers (commercial and non-commercial) are analysed. The analyses also take into account (qualitatively) that the individual options for action can influence the costs (including transaction costs) of the transformation of the energy system and sector coupling in different ways.

The methodology included the selection of evaluation criteria and indicators as well as qualitative and quantitative impact analyses for both the current situation and identified reform options in the context of future developments to achieve climate targets. Fraunhofer ISI was responsible for project management. Various policy options and reform proposals were discussed and evaluated as part of the project. These evaluations were based on previously quantified impacts on various stakeholders such as industrial sectors and model households, distributional effects between sectors and within the household sector, and on the national budget. The most important policy instruments included alternative financing of the Renewable Energy Sources Act (EEG), the effects of changes in revenue from electricity and energy taxes in the context of the energy transition, and CO₂ pricing on sectors, industrial sectors and households. The effects of various redistribution mechanisms for ‘climate money’ were also analysed.

A comprehensive analysis of the existing financing architecture of the energy transition and its impact on sector coupling technologies, distribution effects and environmental goals was carried out within the project. Key results include a systematic typology of financing instruments, categorised by sector, stakeholder group, financing source and institutional arrangement, and a consistent evaluation framework. This enables alternative financing regimes to be assessed based on key criteria such as climate impact, energy efficiency, the economic efficiency of sector coupling technologies, infrastructure compatibility, fiscal effects, distributional fairness, competitiveness, cost efficiency and feasibility.

On this basis, Fraunhofer ISI's D-IMPACT microsimulation model was further developed to quantitatively analyse the distributional effects of the status quo both sectorally and for differentiated model consumers in the household, industry, commerce, trade and services, and transport sectors. The results show how existing price components, relief measures and support mechanisms influence the economic efficiency of sector coupling technologies and which actors or applications are disproportionately burdened or relieved. In addition, energy-related relief and support measures were identified and evaluated in terms of their climate impact. Their financial scope was also estimated and possible misguided incentives were taken into account.

Building on this, the project developed several reform options for the future financing of the energy transition and assessed their impact on the economic viability of key sector coupling technologies, the distribution of financing burdens and public budgets. The analyses show the conditions under which technologies such as heat pumps, electromobility, and electricity-based energy sources are profitable and how financing mechanisms can be designed to stimulate investment, cushion distribution effects, and achieve climate targets in a cost-efficient manner. The results of the quantitative impact assessments of the reform options were compiled for an internal report and form a reliable basis for decision-making on the further development of energy and climate policy financing instruments.

December 2020 – December 2022

• Federal Ministry for Economic Affairs and Energy

• Consentec GmbH
• Institute for Climate Protection, Energy and Mobility e.V. (IKEM)