As Nordstream 2 stalls, German industry warns of bankruptcies

22 Feb 2022

Quantum Commodity Intelligence – Germany's biggest industry association has warned that high energy and carbon prices mean that a quarter of all medium- and small-sized businesses in Europe's biggest economies may not survive.

According to a Federation of German Industries (BDI) survey, energy-intensive companies such as fertiliser producers and steelmakers have already had to shrink production over the past six months as gas and electricity prices have soared.

And more may be forced to shut or relocate.

"Energy cost increases are higher than they have been since the oil crisis of the 1970s. Rapid political action is required," the BDI said in its report.

The BDI says a "clean sweep of national taxes and surcharges, such as electricity taxes and grid fees" is needed as well as exemptions from the country's carbon tax if companies are not to relocate abroad.

The study comes at an acute time for Germany's chancellor Olaf Scholz, who on Tuesday paused the certification of the NordStream 2 pipeline that transports Russian gas direct to Northern Germany after Russia sent troops into Ukraine, sending gas prices soaring.

The hike will likely feed through to higher energy prices, which are already at record highs due to a global energy price boom that has seen carbon prices in the EU Emissions Trading Scheme surge to nearly €100/mt.

In addition to the ETS, Germany brought in its own scheme in 2021 targeting the transport and heating sectors and stating a fixed price of €25/mt for carbon in 2025, rising to $55/mt by 2030.

Germany, which is ruled by a three-party coalition including the Green Party, has a target to cut emissions 65% under 1990 levels by 2030. Its target is seen as the most aggressive in Europe.

The warning of a relocation of industry – so-called carbon leakage – due to high carbon prices comes as the EU mulls how best to roll out its carbon border adjustment mechanism to force exporters of carbon-intensive goods to the EU to account for the carbon emitted in the production of the goods.

The scheme's rules are still being agreed, but EU buyers of the goods will be forced to buy carbon allowances under the EU ETS to account for the carbon emitted, then claim back the cost should the seller show that the carbon cost has been accounted for in another regime.

Voluntary offset developers are hopeful that some credits may be recognised in the process, although analysts are doubtful.