Davos 2023: Special address by Olaf Scholz, German Chancellor 

What a difference a year makes! When I spoke to you last year around this time, our discussions revolved around the global economy’s path out of the pandemic. At the start of 2022, many people were expecting a boom– or at least a substantial boost for our economies’ transition toward climate neutrality.

Then came February 24.

Since then, Russia has been waging an imperialist war of aggression, here on our doorstep in Europe. With dreadful consequences, that Ukrainians are bearing more than anyone. Just today the Secretary of the Interior and 15 other victims were killed in a tragic helicopter crash. We are with their families.

But the war is also having an impact on all of us. For a while, energy prices jumped to levels higher than we had ever seen before. Around the world, production costs and consumer prices exploded.

Many people fear that coal and oil will make a lasting comeback all across the world. If that were to happen, the 1.5 degree target would become meaningless.

Our supply chains must be adapted to new geopolitical realities – realities that you called a “messy patchwork of powers” in your speech yesterday, Klaus.

And over all of this hangs a sword of Damocles: the danger of a new fragmentation of the world, of deglobalization and decoupling.

And yet, ladies and gentlemen, this is just one part of the story of last year, just one part of the reality that we are looking at here in Davos.

The other part of the story is this: Russia has already failed completely in reaching its imperialist goals. Ukraine is defending itself with great success and impressive courage. A broad international alliance – led by the G7– is providing the country with financial, economic, humanitarian, and military support.

Germany alone made available over 12 billion euro last year. And we will continue to support Ukraine – for as long as necessary.

In Berlin at the end of October, we worked with international experts to draw up a Marshall Plan for the long-term reconstruction of Ukraine. A platform of major donors is coordinating the process and – in consultation with Ukraine – ensuring that it is well implemented.

Private-sector capital will play a key role here. I know that many companies in Germany and beyond are very aware of the opportunities that a Ukrainian economic miracle could offer to them. Particularly as the country moves toward the European Union after the end of the war.

But in order for the war to end, Russia’s aggression must fail.

That is why we are continuously supplying Ukraine with large quantities of arms, in close consultation with our partners. This includes air defense systems like IRIS-T or Patriot, artillery, and armoured infantry fighting vehicles, marking a profound turning point in German foreign and security policy.

And there’s another part to the story of last year: Within a few months, Germany made itself completely independent from Russian gas, Russian oil, and Russian coal. We concluded new partnerships– in Asia, Africa, and America– thus lessening our dependence. And so, I can say that our energy supply for this winter is secure – thanks to well-filled storage facilities, thanks to improved energy efficiency, thanks to remarkable solidarity within Europe, and thanks to the readiness of our companies and of millions of citizens to save energy.

As a result, energy prices have recently seen a huge drop.

Our measures to reduce the burden on private citizens, companies, and businesses are working. Inflation is falling slowly – thanks, incidentally, also to resolute moves by the central banks. Industrial production in Germany has remained stable over the past few months, against all the odds. Our employment rate is at record levels and has recently increased even further. Most importantly, our transformation toward a climate-neutral economy– the fundamental task of our century – is currently taking on an entirely new dynamic.

Not in spite of, but because of the Russian war and the resulting pressure on us Europeans to change.

Whether you are a business leader or a climate activist, a security policy specialist or an investor– it is now crystal-clear to each and every one of us that the future belongs solely to renewables. For cost reasons, for environmental reasons, for security reasons, and because in the long run, renewables promise the best returns!

So: Yes, the past year brought fundamental change for Germany and Europe.

But Germany itself has fundamentally changed as well!

We are resolutely pushing forward with the decarbonization of our industry.

We want to be climate-neutral by 2045. And at the same time, we will remain a country with a strong manufacturing sector. And despite all the difficulties this past year showed us: we can and we will succeed in that.

In less than seven months, we built up an entirely new import infrastructure for LNG in Wilhelmshaven. In the future it can also be used for hydrogen. Just last Saturday, I opened our second LNG terminal within just a few weeks, in Lubmin. The day after tomorrow another terminal-ship is expected to arrive at the port of Brunsbüttel. More will follow. This is not only good news for our energy security and that of our European neighbors who will be receiving gas from these terminals.

Above all, it shows: Germany can be flexible; we can be unbureaucratic; and we can be fast.

I spoke of a new Deutschland-Geschwindigkeit in this regard, a new “German speed”.

We will make this German speed the benchmark – also for the transformation of the economy as a whole. Your companies can hold us to this standard. A new law mandates that the expansion of wind power, solar energy, as well as electricity and hydrogen networks now take priority. We will make available no less than two percent of our country for wind power – with a minimum of red tape.

We have streamlined our processes so that approvals for electricity grids – to name just one example – are granted on average two years faster than before. And we intend to step up the pace even more.

You can also rely on our targets. The obstacles have been swept aside.

For 2023, we have more than doubled the volume of calls for tender for onshore wind farms alone. By the year 2030, 80 percent of our electricity production will come from renewable sources – again, double what it is at present. At the same time, our electricity requirements are increasing – from 600 terawatt hours today to 750 by the end of the decade. And we are expecting them to double, yet again, in the 2030s.

This is a massive increase.

That’s why the Federal Network Agency has been given a clear mandate to prepare and expand our electricity grids accordingly. We will regularly review the progress made. If it’s not on schedule, the measures will be adjusted. However, electricity alone is not enough to run Germany’s industry.

I am thinking, for instance, of steel production. Hydrogen will play a decisive role there. And that is not a far-off scenario. Last fall, Thyssenkrupp gave the green light to build a direct reduction plant for low-carbon premium steel. With a capacity of 2.5 million metric tons, the plant will save 3.5 million metric tons of CO2 per year.

This is just one example of Europe’s strength in innovation. Europe is the world’s number one in hydrogen patents. And one in ten global applications comes from Germany. The first supply chains for green hydrogen are currently being built up in our country. For our own production, we are using offshore wind in the North Sea. In parallel, we are concluding hydrogen partnerships worldwide. For as long as quantities are small and the costs of production correspondingly high, the state will bring prices down to a level lucrative for the industry.

Our goal is nothing less than an electrolysis boom. And, as quantities increase, a hydrogen-powered industrial sector will emerge that preserves the climate and is independent of volatile prices for fossil fuels.

Because one thing is absolutely certain: Energy must remain affordable – in Germany, in Europe, and worldwide. In Germany, we decided to cap electricity and gas prices for private citizens and companies. These measures will run until 2024. Annually, we will use around 2.2 percent of our GDP for this, a total of up to 200 billion euro. That is both forceful and proportionate. It will give your companies the reliable energy prices and the planning certainty you need to invest in Germany’s transformation.

In the European Union, we have agreed on joint targets for gas filling and saving. We will purchase gas jointly more often and coordinate storage better. And we will use our market power to ensure that European prices do not decouple completely from the world market. Moreover, we are also aware of our global responsibility. Let me say this expressly to our friends and partners in Asia, Africa, Latin America and the Caribbean: The fact that we Europeans purchase LNG on the world market, must not lead to scarcity elsewhere.

We will need alternatives for the roughly 120 billion cubic meters of gas from Russian pipelines missing from the world market – more renewables, of course, but also, temporarily, additional gas resources.

Otherwise there is a danger that without affordable gas, emerging economies in particular might switch back to coal. This would be even more harmful to the environment.

Of course, we must avoid new lock-ins, new path dependencies at all costs – by making new projects HO2-ready from the very outset and by expanding renewables in parallel. In the short term this may lead to higher costs. In the long term we all stand to save if the impact of climate change is less dramatic.

In Germany, too, switching to a climate-friendly economy will take efforts.

We are talking about investments around 400 billion euro for the expansion of renewables between now and 2030. Investments, by the way, which are already well underway. The most recent example is a contract worth billions for Siemens Energy to connect a new offshore wind park to the grid. And this is just one example illustrating why this turning point towards a climate-friendly industry is not the end of our industrial powerhouse. But a new start!

After all, even before the energy crisis that Russia triggered, Germany’s business model was not only based on the energy-intensive mass production of aluminum, cement, or crude steel. But on highly specialized research- and technology-intensive industrial products. Products that are needed all around the world. All the more so, actually, when the world is now transitioning towards a climate neutral future.

Even before Russia’s war of aggression, Germany’s energy prices were not the lowest. And yet Germany was and remains competitive. This is because of thousands of small and medium-sized enterprises all across the country. Enterprises that are highly innovative and adaptable – which explains why they are so often global leaders.

This is thanks to high public and private investment in research and development, which, for example, ensured that the first COVID-19 test and the first safe and effective COVID-19 vaccine were developed in Germany. Just in December, a team at the Helmholtz Center in Berlin set a new world record for the efficiency of solar cells. And now, just a few weeks later, our companies are already setting up pilot lines for the use of these tandem cells.

That, ladies and gentlemen, is and remains the German business model – particularly now as we chart our path to a climate-neutral future.

Where else is there such broad consensus between businesses, employees, and politics that the path to climate neutrality is not just ecologically necessary but also offers new opportunities in global competition? When it comes to basic and professional training for employees, for example, politics, business, and trade unions in Germany are working hand in hand. And before the year is out, our country will finally benefit from modern immigration legislation.

After all, if we want to remain competitive as a leading industrial nation, we need experienced practitioners – qualified engineers, tradesmen, and mechanics. Those who want to roll up their sleeves are welcome in Germany. That is our message!

For decades now, the forecasts have been predicting a shrinking German population. But it is up to us to decide whether this happens. So far it certainly hasn’t. Today Germany has more inhabitants and employed persons than ever before. And this is precisely the trend we are going to continue.

Ladies and gentlemen,

A climate-neutral future is, needless to say, not something any single country can achieve on its own. That is why our dialogue and a forum like Davos are so crucial. What we are doing in Germany also serves the goal of making Europe the first climate-neutral continent by 2050. At a European level, we are going to lower our net greenhouse gas emissions by at least 55 per cent by 2030 compared to 1990. This decision stands.

Here, we are relying on the market, on competition, and on innovation. The EU’s emissions trading system is a case in point. Even today we are using it to cut permissible emission levels in a way that is predictable for all. At the same time, this system is serving as a catalyst for innovation.

But to ensure the most ambitious are not disadvantaged, we prepare a carbon border adjustment mechanism in Europe. At the same time however, Europe remains open for international trade. I am doing my utmost to ensure that the free trade agreements we have successfully negotiated with Canada, Korea, Japan, New Zealand, and Chile will soon be followed by new ones: with MERCOSUR, India, and Indonesia. And we are also open to discuss a tariff agreement for the industrial sector with the United States.

Through these agreements we are creating a level playing field and we are preventing high-emission industries from heading off to countries with less ambitious climate targets.

This is also the aim of the international Climate Club we launched during Germany’s G7 Presidency. A Secretariat has recently been set up at the OECD and the International Energy Agency. So the Club is now open to new, ambitious members.

In the United States, this ambition has a name: the Inflation Reduction Act. Some 370 billion dollars have been earmarked for energy and climate change mitigation over the next ten years. I very much welcome this investment.

Through the German Climate and Transformation Fund we have made almost 180 billion euro available ourselves for the period 2023 to 2026. But local content requirements for certain products must not result in discrimination against European businesses. Protectionism hinders competition and innovation and is detrimental to climate change mitigation. We, as EU members, are talking to our American friends about this.

And at the same time, we are looking at what we ourselves can do to further improve investment conditions here in Europe. The Chips Act, for instance, has brought about a new start for chip manufacturing in Europe. Investors are starting new production plants for billions of euros. They can build on an existing semi-conductor industry. This could become a model for other key technologies – particularly in the digital and climate sectors. And the funding is there for the taking. To date, only 20 percent of the more than 700 billion euro in the European Recovery Fund has been paid out. Its full impact will thus emerge over the coming years.

To remain competitive, we will have to make European legislation on state aid more agile and flexible – just as European Commission President Ursula von der Leyen has proposed and reaffirmed here yesterday. So that investors know in advance what support to expect – and don’t have to wait until years after their investment to find out.

Ladies and gentlemen,

The past year challenged us as seldom before. Yet at the same time, we changed and moved things forward as seldom before. Germany itself is changing.

If I may make a prediction: My successor will address you at the World Economic Forum in 2045. Sure: He or she will present Germany as one of the world’s first climate-neutral industrial nations. Energy supplies in Germany and Europe will then be sourced almost exclusively from green electricity, heat, and hydrogen. We will be moving emission-free on our roads and railroads. Our buildings will be energy efficient. Our businesses will be producing on a climate-neutral basis. And what is more, they are the ones who will have driven this transition, who will continue to drive it.

So, if you ask me today where you can invest in the future sustainably with a high return, my answer is: Don’t look any further! Come to us, to Germany, and to Europe!

Thank you very much.