The German economy could absorb an immediate halt to Russian gas supplies with the right economic policy measures. Germany must reduce its gas consumption by around 25 percent by the end of the upcoming heating season. The economic costs of such a reduction would be similar to those of an energy embargo in the spring. This is shown by an updated estimate of the team around Prof. Dr. Moritz Schularick and Prof. Dr. Moritz Kuhn, members of the Cluster of Excellence ECONtribute of the Universities of Bonn and Cologne. The study has been published as “ECONtribute Policy Brief”.
“The costs will still be in the same order of magnitude as predicted in March,” says Moritz Schularick, professor at the ECONtribute Cluster of Excellence at the University of Bonn. Back in the spring, his team used a macroeconomic model to calculate what the economic consequences of a cut-off from Russian energy imports would be and combined the results with data on German energy consumption.
The researchers assume that Germany’s gas storage facilities should be 20 percent full at all times to provide a buffer for a cold winter or further supply interruptions. To achieve this, Germany would have to reduce its gas consumption by about 25 percent by the end of the upcoming heating season – even if the new LNG terminals come on stream in winter as planned and gas is imported from third countries. If electricity suppliers use alternative energy sources (for example brown and hard coal) instead of gas, this leaves a gas gap of just under 20 percent, which industry, commerce, households and the public sector will have to save.
Gas demand not sufficiently reduced
The storage facilities are now filled by a good 100 terawatt hours (around 40 percent of the storage volume) more than they would have been in the event of an embargo in the spring, the study says. However, gas demand has not fallen sufficiently so far.
If Germany had already had to manage without Russian gas in April, demand would have had to be reduced by 31 percent, i.e. six percentage points more. But this would have given more time to replace gas in power generation, building heating and industry. Reducing gas consumption by just under one-fifth for the coming heating period is feasible, but would entail economic costs, according to the researchers.
Economic policy incentives to save gas are lacking
Production would be down, primarily in the chemical industry. However, companies such as BASF show that it is possible to partially replace gas. “Germany can get through the winter without Russian gas, the current scaremongering is misplaced,” says Schularick.
What is needed, the researchers say, are economic policy measures that motivate people to save gas. They propose, for example, a gas tax that rewards frugal consumers via a rebate. “Politicians have so far failed to provide sufficient incentives to save gas,” says Schularick. Measures to save heating energy in the commercial sector are also important, for example through home offices or changes in store opening hours, he adds.
On the positive side, the researchers emphasize the progress in the construction of new LNG terminals and the significant decrease in the share of Russian gas imports due to additional gas imports from third countries.
Prof. Dr. Moritz Schularick
ECONtribute, Universität Bonn
Tel. +49 228 73-7976
Prof. Dr. Moritz Kuhn
ECONtribute, Universität Bonn
Tel. +49 228 73-62096