Investments needed for achieving climate neutrality in Austria and their economic implications

Abstract

Achieving net zero greenhouse gas emissions until 2040 or 2050 as envisaged in different climate agreements and targets on the national and the European levels implies the socio-ecological transformation of our socio-economic system and significant investment in the industrial production processes, housing insulation, the electrification of road transport, renewable energy sources and the electricity grid. In this paper, we present investment requirements in Austria to achieve climate neutrality by 2040 or 2050, respectively, in different climate neutrality scenarios. The energy, industry, transport and building sectors play a central role. Regarding the financing of these investments, the study looks at how the instruments and framework conditions for private and public funding should be organised. One important instrument to achieve net zero emissions is an increasing emission price, together with a stable and strict climate mitigation policy framework. These emission prices may raise the operation costs of Austrian companies. We estimate the paths of operating costs for the Austrian manufacturing sector and its sub-sectors, based on projections for the CO2 price, the prices of fossil fuels, and projections of the change in energy sources used in the different industries, e.g. the substitution of oil and gas with renewable energy sources and electricity. Then we estimate by how much the rise in energy costs impacts on the competitiveness of Austrian companies, measured via changes in exports of the manufacturing sector. The estimations and simulations until 2050 show that some energy-intensive industries come under pressure, if other important countries like the USA und China are not confronted with rising energy costs. These results are valid for the energy price paths assumed in the transition scenario towards climate neutrality. The short period of data available for the econometric estimations in combination with the long simulation horizon call for a careful interpretation of the results. Rather than stressing the quantitative results, the focus should lie on the order of magnitude and on qualitative interpretations. Particularly sudden and sharp increases of energy prices have the potential to impair on the competitiveness of the affected economies.