Organic milk is expensive, and bio paint even more so. Natural insulation material costs more, as does clothing made from untreated raw materials and produced and traded fairly, at least on average and in price comparisons relevant to the end customer. Many other examples could be added to the list. Still, one thing is clear: price comparisons should not be confused with cost comparisons. If you take into account the externalities as well, then organic milk, bio paints, natural insulation materials, and so on are actually cheaper than their ecologically inferior counterparts. However, it remains a common practice to shift the burdens of hidden follow-up costs onto the general public, and that makes it more difficult to figure out the true costs. Nevertheless, they do accumulate over time. For that reason, there is less money available to make other investments, whether in education, health, more rail transport, energy infrastructure, or other kinds of public services.
Communalization of externalities
So, for both ecological and social reasons, it is makes good sense to put a price on externalities and even to take the more challenging step of eliminating subsidies that harm the climate. From a purely ecological perspective, those steps should be taken because it is indefensible not to incorporate planetary limits into the general framework of a market economy. And from the viewpoint of social sustainability, putting a price on externalities is the right thing to do, not least because the polluter-pays-principle dictates that costs such as those arising from the loss of biodiversity, climate change, and nuclear waste, all knock-on effects likely to harm the generations to come, should not be shifted onto the general public. The communalization of externalities, i.e., their absorption by the entire community or society, which occurs in many areas unperceived by the public, ultimately contradicts the aspirations and essential character of a socioecological market economy.
Ecological knock-on effects with impacts on significant resources also have direct consequences for opportunities and social inclusion. When resources start to run out, scarcity effects arise, as do rising costs and the distributive inequalities that accompany them. A variety of political challenges almost immediately result. First, potentially there will be physical underprovision, which must be prevented and, if need be, compensated for. Also, whenever price increases caused by shortages kick in, the state must intervene if underprovision of basic resources due to economic factors would otherwise occur, but also to avoid social imbalances. Quite recently, the natural gas crisis in Germany brought that effect home to us.
For its part, state aid (read: climate-damaging subsidies) should not distort competition at the expense of sustainable alternatives. That is so because the longer humanity remains dependent on fossil resources, the more likely it is that we will be exposed to the knock-on effects enumerated above.
As rising prices for fossil fuels last winter made clear, energy price brakes failed to thwart efforts to economize or even slow down the continuing market runup, for example of renewable energy technologies.
Compensatory measures adopted by the state, such as were approved in 2022 in the form of relief packages to the tune of some 300 billion euros in all, soak up state funds that are then proportionately less available for other purposes. However much this seemed to be an unavoidable step in a special emergency situation such as that of 2022, this approach should remain limited to exactly those one-off situations. Constantly recurring relief packages to compensate for increasingly unaffordable energy prices overextended states’ finances and led to reductions in investment and lowered governmental capabilities.
Guarantees for social inclusion and peace
The social dimension is far more dramatic: We will not bump up against planetary limits overnight, regardless of whether we have in mind the knock-on effects of climate change, the loss of biodiversity, or the exhaustion of finite resources. As the ecological crisis rolls along, it will bring about conflicts of its own, perhaps even violent ones, by impeding access to resources and causing distributive imbalances. Wars over oil (e.g., in Iraq) or land purchases in Africa, especially by China, were and are a reality already. The longer humanity remains in thrall to the consumption of fossil resources, the more vulnerable it makes itself to wars to obtain them, conflicts that become ever more likely and unavoidable. Thus, liberating ourselves from such dependencies is one crucial mandate of a peace policy.
In fact, the “non-ecological” component of our economic asset base is the socially irresponsible part. The longer our dependence on fossil resources lasts, the more pressing the concern that, in budget-making, we will allow states to be transformed from the leaders to the led.
By itself the price spiral comes up short
However, at the same time, experience shows that reliance on price-setting alone to achieve socially desirable goals has gone about as far as it can, whether from a social or an ecological perspective. We need to come up with a more nuanced approach. That becomes apparent if we consider the case of CO2 prices. The Fuel Emissions Trading Law provides for a phased CO2 price increase. However, a moratorium put in pace under the aegis of the 2022 energy crisis has stalled that law for now. From a social responsibility standpoint, a further increase in CO2 prices parallel to increased energy prices would have been too much to ask, although the cancellation of the price rise is also a fundamentally unacceptable burden when we focus our attention on the communalization of emissions-related knock-on effects, as we have done here.
Then from an ecological perspective there are corresponding dilemmas. It’s true that, on one hand, a rising price for CO2 does reduce or even eliminate competitive distortions that make it harder for alternative drive technologies to gain access to markets. On the other hand, the production processes for such technologies also were affected by the price rise of CO2 during their market runup.
Effects of this kind also are to be found in the energy economy. As long as we still haven’t gotten to 100% renewable energy sources, the producers of wind turbines also will feel the effects of increased CO2 prices.
The same pattern was observable in the wake of the diversification of natural gas imports: Along with most of Europe Germany decided to free itself from Russian energy imports. Within a few months the bulk of the gas Russia had been supplying was replaced by imports from other countries. Once the Nord Stream pipelines 1 and 2 were sabotaged, the remainder of Germany’s natural gas imports from Russia—which once met 55% of the country’s overall needs—ceased. The drop-off in Russian gas imports also mandates efforts to save energy, especially since prices have risen almost exponentially.
Energy economists unanimously agree that the most effective energy savings—the ones that would avoid the need to buy extremely expensive gas—are the ones realized via price signals. The more expensive energy becomes, the less of it people will use. But things were and are not that simple. Let’s consider the people who would be hit relatively the hardest by such price mechanisms. They often live in poorly insulated houses, almost never are able to save money anyway, and regularly spend more than they earn. Already, they heat their homes as little as they can. Small businesses too, e.g., bakeries, capitulate in the face of rising prices for natural gas. In brief: At the time when one needs a commodity like gas, (higher) prices by themselves will not foster alternatives.
To guarantee stable prices we need to speed up the energy transition
Because dependence on fossil resources entails the risk of causing imbalances in access to energy and its affordability, the accelerating transformation process is of great significance, even if we disregard the urgency of countering climate change. Even if climate change were not such a pressing problem, we would still have to speed up our campaign to de-couple from the consumption of fossil fuels.
As soon as signs of scarcity in the availability of resources show up due to their finite supply, panicky effects and price increases will noticeably hamper any kind of societal response, if not paralyze it altogether amid enormous social disequilibria. Ultimately, as we have already seen, access to resources and energy are indispensable to any sort of civilized intervention and are of elementary importance for social inclusion as well. If access becomes a matter of affordability, society will soon face a stress test.
Only when alternatives are available can prices fulfill their steering function
So, in this regard, we need an intelligent regulatory scheme that minimizes the disadvantageous effects noted above rather than encouraging them, even if unintentionally. There is an important lesson to be drawn from the example of the Fuel Emissions Trading Act and another law that supplements it, the CO2 Cost Allocation Act, which was intended to split rising CO2 costs between landlords and tenants. We should now recognize that rising CO2 prices for heating may serve to steer and direct the choice of technologies, for example in the case of tenants, only to the extent that the tenants themselves have some say in the switchover to alternatives. When that is not possible for them – and it’s not where central heating is concerned – the steering function of prices for tenants is reduced to little more than the tenants trying to save money. That is one reason why the SPD insisted from the very beginning that the CO2 price should be determined in such a way that the landlords too would have to bear a share of the burden consistent with the principle of landlord responsibility.
By contrast, no costs were supposed to be imposed on the tenants for matters beyond their sphere of responsibility.
Following that same line of reasoning, we must also proceed in a more nuanced way when it comes to dismantling climate-damaging subsidies. If they are a fixed component of established structures, including those that concern the development of rural land (as is the case with tax-deductible commuting expenses for employees) we are dealing with a different state of affairs than, say, with the company car privilege, the abolition of which would entail no social imbalances but would send an important signal concerning how to make an automobile economy fit for the future and how to keep the jobs it generates here at home. Thus, plans to abolish climate-damaging subsidies always must consider whether the changes contemplated are socially sustainable and compatible. Furthermore, they should take into account interdisciplinary linkages and/or knock-on effects.
Also, in deciding on all monetary policies, we must do our best to avoid lock-in effects, since otherwise they are especially likely to lead to dependency. For example, we want to reduce climate-damaging residual emissions, but to do that many people are calling for the application of negative emissions technologies such as carbon capture and storage. Those technologies would strip out the CO2 and store it underground indefinitely. But in the final analysis this approach contradicts our social commitment to freeing ourselves from finite fossil resources as quickly as possible.
Subsidies by the state, justified in part by claims of their supposed climate neutrality, may create disincentives for ending the use of fossil fuels. In so doing, they might conceivably prolong the use of just such resources, thereby exacerbating our dependence on them (with all its social follow-up risks) due to the lock-in effect noted above. So, no matter what regulatory measures are envisaged, it is always vital to calculate the knock-on effects.
It would be shortsighted to evaluate the social dimension of ecological issues purely on the basis of a compensatory justice viewpoint. That is to say: the compatibility of ecological guideposts with principles of social sustainability is not assured solely by compensating financially for regulatory practices that cause prices to rise. Rather, the hallmark of ecological guideposts must be that they enable broad participation in making the needed changes. Thus, the interplay of social and ecological issues calls for a regulatory scheme that puts all human beings in a position to incorporate the process of transformation into their professional and social lives. If animal welfare is one of society’s goals, our regulatory system must make sure that someone is keeping tabs on it. We can’t leave it up to the enlightened benevolence of consumers to achieve demand-side steering effects.
If the sun and the wind don’t send us bills, it is our social duty – and our obligation as advocates of a peace policy – to make this fact palpable for every human being.