Energy, Climate Change & Environment

The financial sector may play a central role in climate change. This is because, ideally, climate policy measures create important incentives for investors throughout the globalized world to redirect their capital in favor of a cleaner production and thus lower emissions. That is why climate policy must consider the link between the real sector and the financial sector. This transition will not happen by itself. It requires targeted financing measures. To make it effective, policymakers need information about what economic activity, and thus what investment, can be considered green or sustainable. The task is to identify and compile relevant data and provide it to investors in a suitable classification, e.g., via an ESG rating or a taxonomy. Our authors in the “Policy Debate of the Hour” discuss to which extent green finance can make the economy greener. They also examine the role the financial sector can play in this transition. Among other things, they shed light on how “green” can be measured and look at the role of climate policy and incentive effects. They also provide recommendations for both economic and climate policy. In our “Economic Policy and its Impact” section, the authors shed light on the question of how teaching evolutionary theory changes students' knowledge and important choices in their life. In “Institutions Across the World” we discuss how policymakers can create incentives for households to follow tax rules when they use household-related services. The section “Big Data-Based Economic Insights” uses a textual analysis to look at remarks made in ECB press conferences.

The current energy crisis in Europe is bringing about profound changes that can accelerate the transition to a more sustainable and secure energy system. Yet, it is a supply shock of unprecedented scale and complexity, most noticeable in the markets for natural gas, coal, and electricity. Winter promises to be tough - especially for low-income households that use gas for heating and for small and medium-sized industrial companies. Short-term policy measures aim to shield consumers from the effects of the crisis: these include gas and electricity price brakes and energy subsidies for households. At the same time, many governments in the EU are now trying to increase or diversify oil and gas supplies and also accelerate structural change. The articles in the “Policy Debate of the Hour” section of this issue of EconPol Forum examine the causes of the crisis, analyze its effects, critically assess the policies already in place, and propose new short- to medium-term energy policies to better manage it and strengthen the EU’s systemic resilience to energy market volatility.

The Ukraine war and geopolitical tensions pose major challenges for supply chains. Whereas shortages of microchips became a symbol of supply chain disruptions during Covid-19, a survey from June 2022 from the ifo Institute shows that over 74% of German manufacturing firms report production disruptions due to shortages of different types of inputs and raw materials. The production of key technologies that are necessary, for instance for the energy transition, often depends on imported raw materials. Therefore, it is important to evaluate Germany’s raw material dependencies at the product level to identify the risk of future supply chain disruptions. This paper identifies nine critical raw materials, which have a high degree of supplier concentration and are used in more than half of the key technologies. For these raw materials, we provide a detailed analysis on Germany’s dependency on imports.

This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%).

The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.