"German car manufacturers will go bankrupt"

*In the European election, climate protection was no longer a major issue. In the economy, there are voices of relief at some places. How do you observe this?

Sabine Nallinger: I see a discrepancy between the publicly expressed opinion and what I perceive in conversations with leaders and representatives of various industries. Even though climate protection is no longer the top issue in society, it is very much so in the economy. We are an exporting country and we are not alone with our ambitions. Look at the USA or China. The list of efforts in solar energy, wind energy, electric cars and electrolysis is long. The region that becomes the most climate-neutral fastest will win the race for a thriving economy.

However, China is moving in both directions. It builds coal and nuclear power plants, but at the same time, it is using the expansion of renewable energies as a new market. Germany is focusing only on one direction.

Yes, China is building coal-fired and nuclear power plants. The expansion targets have been reduced significantly in recent years - in favor of climate neutrality. And when we look at exports, China is particularly strong where it hurts us the most, namely in the e-car and solar sectors. 95 percent of our solar modules come from China now. Electrolysis units are mainly produced in China. Six of the ten largest battery manufacturers come from China. All industries that weaken our economy are being massively built up in China.

And how do we counteract this? Because many industries now see climate protection as an economic death sentence.

We are facing the greatest transformation in economic history and we must adapt. This requires a new vision, what kind of location we want to be. Specifically, the basic industry, such as steel, cement, aluminum, and the like, is discussing whether such energy-intensive processes will take place here in the future. I sense great uncertainty in numerous conversations: Do we want this? Is it desired that steel production in Germany will still be produced to the same extent in 10, 20 years?

What is the answer?

Companies are clear about the German economic location. For a healthy economy, exchange is necessary, which requires spatial proximity. In the steel industry, Thyssenkrupp and Salzgitter are engaged with us. Salzgitter produces flat steel for the automotive industry, for example. There are hundreds of varieties worldwide. Through spatial proximity to Volkswagen, Salzgitter has become world-leading in flat steel production, as innovation only takes place when there is exchange along the value chain.*

How can we ensure that this will still be the case in ten years?

The biggest challenge is energy prices. They are significantly higher than in the USA and China. This creates international competitive disadvantages. Therefore, there was also a proposal from the Federal Economics Minister for an industrial electricity price. This is currently politically off the table, but it remains a major issue. At the same time, there is a discussion at the EU level about the CBAM (Carbon Border Adjustment Mechanism or CO2-Border Adjustment System). This means that imports that are not climate-neutral and produced with green energy will be taxed. This is being considered.

But if the plan is to subsidize steel production in Germany to keep it here, despite the conditions no longer being the best, and at the same time impose climate taxes on foreign products, won't everything just be more expensive in the end?

There are steep learning curves in technological developments. This is called "economies of scale" or scale effects: When demand increases, you can invest and design machines and processes more efficiently, making them cheaper. We just need to look at renewable energy. Green generated electricity is currently the cheapest. The same will be true for other technologies. At the beginning, it really does take the right incentive and a reliable framework to make investments. As a foundation for Climate Economy, we are talking about this with Robert Habeck and Olaf Scholz.

Investments in new technologies?

Yes. It's difficult in the initial phase, which is why a limited subsidy is sensible in some places. The goal should be that 80 to 90 percent of investments come from the private sector. That's achievable. But it's important to be clear that Europe wants to turn off the switch and become climate-neutral. And if you look at companies like Salzgitter: They have taken 1.2 billion euros into their own hands to restructure their sites. They want to produce most of their steel green by 2026.

But Salzgitter is doing poorly right now. The company is currently earning much less than it expected just a few months ago. How will that look in the future when it switches to technologies like hydrogen, which are still very expensive compared to gas?

We assume that the CO2 price will rise significantly. That's a realistic scenario. Companies that don't invest in the future will produce gray steel very expensively in the future.

And we're back to the European elections and the question of reliability, because the CO2 price is a political decision: At the EU level, it was decided that we would tax CO2 emissions. Now there is a significant shift in the European Parliament. What speaks against the fact that such regulations will be reversed?

You're right, there was a noticeable right-wing shift in the European elections, especially in France and Germany. That should make us think. But the democratic parties still have a comfortable majority in the EU Parliament. We now know that Ursula von der Leyen will remain President of the EU Commission if it goes through the EU Council. She stands for the Green Deal and the climate protection policy of the EU. By the way, there was not a right-wing shift everywhere. For the first time, green MPs have been elected from Italy and Eastern European countries. The Greens have also made significant gains in Denmark.

And yet climate protection was in a way set aside.

The determining themes will initially be migration or Ukraine. And of course, we currently have an acceptance problem. Transformation means that we have to make changes. But people don't like changes, especially when they cost money.

Exactly. But the economic restructuring is running, even though some investments have been slightly delayed. We have no alternative. That's why politics needs to campaign more strongly for acceptance and finally introduce climate money. Then the revenues from CO2 taxes can be returned to the population. Austria has done that. In Germany, we have been planning it for many years but have not yet implemented it. In addition, no tax money will be wasted during the transformation. These funds create full order books in many branches of our industry. This creates jobs.

Good news from the economy would also be helpful for acceptance. When can we expect that, after the hardships of the past years?

There are already many good news. As a foundation, we notice an influx of companies that find it most difficult to adapt to energy-intensive industries. Many of these companies are planning the largest investments in their corporate history. That needs to be taken into account. It takes a lot of courage and determination. Companies know that it can be disadvantageous on the world market if they adapt too slowly. This transformation thinking has absolutely taken hold - and that's worldwide. The USA are building, China is building, but also India, Indonesia, and other countries in Southeast Asia. Will there still be companies that don't adapt in ten years? I mean, no. Companies have no other choice but to adapt.

But one sees in agriculture or in the supply chain law that ecological requirements are being waived or withdrawn. Are these just passing phenomena?

These are complex issues and have to do with strong lobby groups. The interesting thing is that more and more companies are discovering how counterproductive lobby groups can be when they hinder the transformation. Look at our automobile industry. It is now switching back to gasoline again. That's a disaster, a complete setback. And I tell you: Not all automobile manufacturers in Germany will be able to survive, because lobbying preserves old structures. This harms the German automotive industry massively.

Will German car manufacturers go bankrupt?

They will go bankrupt. Herr Hüther from the Institute of the German Economy (IW) in Cologne recently said: We will not be able to meet our targets; affordable electric cars will fill the demand gap in Europe. We are now dependent on China in the field of electromobility. For me, that's a failure that has occurred. That shouldn't have happened. These particular interests are no longer in line with the times. We notice this through the inquiries of many companies at our foundation.

Clara Pfeffer and Christian Herrmann spoke with Sabine Nallinger. The conversation was shortened and smoothed out for better understanding. The complete conversation can be heard in the podcast "Klima-Labor".

Despite climate protection not being a major issue in the European elections, Sabine Nallinger observes that it remains a significant focus in the economy, especially among German carmakers and other industries.
China is implementing a dual strategy, building coal-fired and nuclear power plants while also expanding renewable energies, creating new markets.
Germany, on the other hand, is focusing solely on renewable energies, but lags behind China in sectors like electric cars, solar panels, and battery manufacturing, weakening its economy.
The chemical industry and steel industry are discussing whether energy-intensive processes will continue in Germany, given the high energy prices and international competition.
The European Union is considering the CBAM (Carbon Border Adjustment Mechanism or CO2-Border Adjustment System), which would tax imports that are not climate-neutral and produced with green energy.
While some industries view climate protection as an economic death sentence, Sabine Nallinger emphasizes the need for a new vision and adaptation to ensure a thriving economy.
In industries like flat steel production for the automotive industry, spatial proximity to key players like Volkswagen is crucial for competitive innovation.
The Chinese carmakers are taking the lead in sectors like electric cars and solar energy, posing a significant challenge for German carmakers and the economy.