The author is the German Finance Minister

Once again, German industry and society proved more resilient and adaptable than some people had feared. Horror scenarios of dangerous energy rationing or a massive recession in our economy are often played out. But we’re not even close to that. With a challenging year just behind us, this is good news – not just for Germany, but for Europe as well.

companies and families He reacts quickly to sharp increases in energy prices. They installed more efficient production or heating facilities, and turned to imported substitutes and intermediates. The results are encouraging: German households and businesses have significantly reduced their gas consumption, despite the recent cold weather. From the start of the war in Ukraine until mid-December, industrial gas consumption in Germany (temperature-adjusted) was about 20 percent lower than the average level for the previous three years. even if some companies reduced production, especially in energy-intensive sectors, industrial output as a whole has fallen by only 1 percent since the beginning of 2022. In addition, in survey Released by the Ifo Institute in November, more than a third of German companies saw the possibility of further reducing gas consumption without jeopardizing production.

Rather than imposing excessive laws and regulations, we relied on price signals and the wisdom of market participants to create the right incentives and reduce gas consumption.

We will take this approach in the coming months, when energy savings will still matter. Our latest relief measures will not distort price signals. To this end, the The Bundestag agreed The brakes on gas and electricity prices are in their last session in 2022. They are designed to operate without any interference with markets or prices. This system will pay a fixed amount for previous years’ depreciation and the current difference for a reference rate – regardless of current depreciation.

Energy price brakes are the main component of the German “protective shield”. Up to 200 billion euros available For measures in the period from 2022 to 2024. Given the size of the German economy, its high dependence in the past on Russian energy imports and the fact that the measures will end in 2024, these are balanced and fast mechanisms. Unlike the tools used in other countries, our new arrangements will not affect the process of price formation driven by supply and demand, or the incentives to save gas. Firms and households will continue to save at full market price when they reduce consumption by a unit of gas or electricity. In this way, price brakes also avoid creating additional demand for gas at the expense of consumers in other European countries. You don’t have to be afraid of distorting the competition or buying gas. In fact, A recent working paper from the International Monetary Fund On mitigating the impact of higher energy prices on households, he openly praises the German energy price brake.

Current developments confirm the effectiveness of a market-based approach – and show that we must also rely on price signals when it comes to reducing CO2 emissions. Last year, households and businesses only had a few weeks to adjust, but we’ve already seen a strong response. The effect of carbon dioxide prices can be stronger, as adjustment is possible over a much longer period and they additionally influence long-term expectations and decisions. Regulatory interventions and support schemes, even if well targeted, cannot compete with market coordination and incentives that support individual decision-making and foster innovation.

Europe and Germany can get through this crisis without collapsing industrial production. We also have the opportunity to efficiently deal with the transition to climate neutrality. Either way, we must trust price signals as well as the ability of individuals and companies to innovate and adapt.