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The industrial sector recognizes the importance of carbon neutrality

Professor Sauer, one third of German companies have begun implementing measures working toward carbon neutrality. How would you assess the results of the current energy efficiency index (EEI)?

Our regularly collected statistics actually show that well over a third of companies are already taking measures to reach carbon neutrality. Meanwhile, just four percent of companies aren’t taking any measures at all to reduce their carbon footprint. By far the most common measures adopted by companies are those which aim at increasing energy efficiency, followed by self-generation and the purchasing of renewable energies. For us, it’s a gratifying pattern. It shows that the industrial sector recognizes the importance of carbon neutrality and is already working toward achieving this. Irrespective of these developments, Germany will likely come a lot closer to its climate targets this year on account of reduced economic and consumer activity as a consequence of the coronavirus pandemic.

 

For various reasons, 26 percent of companies aren’t aiming to achieve overall carbon neutrality. Will they still be able to afford this approach in the future?

In light of the future carbon prices we’re expecting to see, every company needs to take action to move toward decarbonization. This applies in particular to companies with a high energy demand – for instance foundries, hardening plants and paper manufacturers – as well as to small and medium enterprises which are not currently subject to the EU Emissions Trading System. However, another important driving force is the prospect that industry clients such as OEMs will begin demanding carbon neutrality from their partners. It is therefore in every company’s best interest to work to reduce its own carbon emissions as quickly as possible.

 

The industrial sector knows how important energy efficiency and energy productivity are, but it’s taking a while to act on this knowledge. Only one percent of German companies are currently carbon neutral. Why is that?

Now that companies are taking this issue seriously, we have a solid foundation which we need to build on. Businesses are prevented from putting energy efficiency measures into action mostly because the financial incentives still aren’t great enough. For instance, these incentives don’t currently enjoy the clear tax recognition that they should. But such measures will become more economically viable as carbon prices rise, and companies will increasingly begin adopting them.

 

Sixteen percent of German companies want to optimize their supply chains in terms of carbon emissions. How much pressure will that put on suppliers?

Companies view the potential for savings within the supply chain as an important factor in reducing carbon emissions. To cite just one of many examples, Volkswagen identified potential for reducing carbon emissions by one third within its supply chain in an initial assessment. The company sees this as an important part of its future efforts to reduce emissions. Businesses are under increasing pressure to become carbon neutral, both internally and externally from their customers. This creates opportunities for companies to develop unique selling points early on and set themselves apart from the competition.

 

What government regulations would you especially like to see in order to increase energy efficiency in industry, and which current conditions seem particularly obstructive to you?

Although the German government declared energy efficiency to be the top priority for the energy transition back in 2015, the issue is not receiving adequate support. For example, while the EEG levy promotes the use of renewable energies, energy efficiency is not receiving comparable subsidies at this time. Between 2015 and 2017, renewable energies received an average of around 33 percent more research funding than energy efficiency. So, an increased focus on energy efficiency would go a long way toward improving conditions. The minimum requirements currently in place for taking part in energy markets represent another significant hurdle. Many small and medium enterprises, which make up the majority of all companies in Germany, aren’t able to meet these requirements. These conditions must urgently be adjusted to give SMEs access to energy markets, too.

 

In your view, what measures should be taken to most effectively reduce the carbon footprint of production processes?

The “energy efficiency first” principle can be applied in order to minimize companies’ energy consumption as far as possible. Most companies are already aware of the importance of general purpose technologies for increasing energy efficiency and have already begun implementing this technology to some extent, for lighting, compressed air, ventilation, pumps, cooling water and heat supply. The results of our energy efficiency index make it clear that further-reaching measures often involve direct intervention in the production facilities and processes themselves. These measures are complex by comparison, but absolutely worth it in terms of energy efficiency.

The next step would be to focus on the use of renewable sources of energy either through power purchasing or self-generation. The results of our survey as part of the energy efficiency index confirm this approach. Along with energy efficiency measures, the use of renewable energies is the most frequently mentioned measure taken by companies to reduce their carbon footprint.

Renewable energies will make up a growing share of our energy mix in the coming years, and the electrification of the industrial sector is set to gain ground at a similar pace as a result. This means that electricity will be used more and more as the final energy source. Our results also show that two in five companies can already envisage switching over from fossil fuels to electrical energy entirely.

 

Efficiency only makes sense when savings in one area aren’t nullified by increased consumption in another. How can such rebound effects be prevented?

The rising carbon price has an important role to play in counteracting the rebound effect, especially if it is set so high that it largely offsets the cost savings created by increases in efficiency. However, it is extremely important to prevent carbon leakage effects, for example via the carbon border tax which is currently being debated.