This panel discussion, part of the INSIGHTS Summit on June 18, 2025, brought together an economic expert to analyze the complex intersection of climate policy, economic stability, and geopolitical challenges. Moderated by Dr. Ana Helena Palermo Kuss, Scientific Officer of the President for Economic and Science Policy, the conversation featured Professor Karsten Neuhoff, Head of the Climate Policy Department at DIW Berlin. The panel moved beyond a simple acknowledgment of climate targets to explore whether Germany's climate goals are a strategic necessity or an economic burden in an increasingly volatile world.
The Economic Cost of Inaction
The panel began by addressing the core question of whether Germany’s climate ambitions can survive global instability. Professor Neuhoff argued that the opposite is true: staying on track with climate goals provides an opportunity to tackle the difficulties Germany faces. He explained that a well-designed transition to clean energy is not an economic burden, but a strategic advantage. Modern renewable energy technologies, in the right policy regime, offer the lowest energy costs available. From an industrial perspective, this is critical, as it ensures the affordable and reliable energy prices needed for German companies to remain competitive and make long-term investments. This makes the energy transition the fundamental basis for Germany's industrial future and social stability.
The Power of "Norms" in Policy
The discussion then turned to the driving forces behind the climate transition. Professor Neuhoff highlighted the crucial role of social norms, particularly the "norm of climate neutrality" that was firmly established by movements like Fridays for Future. He explained that this norm provided a clear destination, shifting the focus of policy from small, incremental CO2 reductions to a strategic, sector-by-sector roadmap. This clarity is a major asset, giving policymakers the guidance to pursue a clear path for decarbonizing five key sectors: power, industry, buildings, transport, and agriculture. Professor Neuhoff warned that failing to lead in these areas would be a disaster for Germany's economic future, especially as countries like China are already demonstrating leadership in key technologies.
Lessons from the Past and the Need for Coordinated Policy
To accelerate the transition, Professor Neuhoff emphasized the need for coordinated, long-term policy rather than relying solely on a carbon price. He used the historical example of building retrofits in East Germany during the 1990s, where a credible, long-term government vision allowed the building sector to scale up capacity and deliver retrofits for 4-5% of buildings per year. In contrast, current sporadic, short-term funding measures create uncertainty, preventing businesses from making the necessary investments and ultimately leading to higher prices without a corresponding increase in output. This illustrated his point that the key to a successful transition is to provide a clear, credible pathway that enables coordination across sectors.
Stabilizing the Economy and Communicating to the Public
The panel addressed the challenges of energy price volatility, which have become a major concern for citizens. Professor Neuhoff argued that renewable energy policy can and should be designed to stabilize energy prices. He criticized past policies that allowed renewable energy producers to reap massive windfall profits, undermining the public promise of domestic and stable energy. He advocated for a redesign of the system using "contracts for difference" to lock in stable prices for both producers and consumers. To better communicate these efforts to the public, he suggested framing climate action as a social agenda. By implementing a "worst-performing first" strategy for building retrofits, policy could directly help low-income households most affected by high energy costs, making the benefits of climate action tangible and personal.
International Cooperation and a New Paradigm
Finally, the discussion turned to international climate leadership. Professor Neuhoff suggested that Germany and its partners should not focus on filling a "leadership vacuum" left by the U.S. Instead, he argued that a more effective approach is to build strong partnerships with especially the Global South and engage in sectoral cooperation. He cited the success of "Breakthrough Agendas" in international negotiations, which bring countries together to work on specific, manageable goals (e.g., in renewables or circularity). This approach leverages complementary skills and shared interests to drive global progress, proving more effective than waiting for a single leader to emerge.
