Q&A with Deloitte’s Global Consulting Sustainability & Climate Strategy Leader

The World Economic Forum 2023 in Davos highlighted the critical need for speeding up the energy transition as progress towards global net-zero targets falls short.¹ However, a Just Transition away from fossil fuels presents complex economic and strategic challenges that organisations must navigate.

We recently sat down with Prof. Dr. Bernhard Lorentz, Deloitte’s Global Consulting Sustainability & Climate Leader, to discuss his involvement in supporting Germany’s energy transition.

Prof. Dr. Bernhard Lorentz is Deloitte’s Global Consulting Sustainability & Climate Strategy Leader and founding chair of the Deloitte Center for Sustainable Progress. He has also founded several leading European think tanks and is an Honorary Professor at the Free University of Berlin. Bernhard has dedicated his career to achieving two primary objectives: decarbonising industries and enhancing the quality of public service. He has delivered measurable impact in advising major global companies in their transition to a decarbonised future and developing new pathways to expedite this transformation for entire industries.

Below are some highlights from the conversation.

To start, could you tell us about your experiences in helping to realise Germany's energy transition away from fossil fuels to renewables?

“Germany’s energy transition started as early as 1990 with a focus on promoting solar and wind electricity production. Germany’s climate commitments strengthened over time and so did the need to speed up the energy transition. The former gained significant pace with a conducted study on a pathway to net zero for Germany, published in summer 2020 by three major think tanks and myself. This study sparked important discussions around the urgency and showed the feasibility to decarbonize the German economy faster. It contributed to setting the stage for the ground-breaking German Federal Constitutional Court’s ruling in April 2021. The Court decided that the Government needs to adopt a clear emission pathway beyond 2030 to be able to reach climate neutrality by mid-century .^[1] This was a game changer for us, both the ruling and subsequently, opposing Parties supporting a revision of the Federal Climate Change Act in summer 2021, which included an climate neutrality target of 2045.

With a change in Government following not long after, there was a further commitment to end coal use by 2030 and to using natural gas to act as a transitional energy source. This commitment was supported by the 2030 Coal Exit Plan that the Coal Commissioner at the time had developed in agreement with the European Union, policy makers, energy corporations, and coal miners. I was consulted as a strategic advisor to this project alongside think tanks and an engineering company to commission the plan and support its execution.”

Given the momentum generated in Germany to transition away from fossil fuels, what do you think are the biggest barriers that still need to be solved?

“A transition to net zero of the energy sector occurs in parallel to transforming hard to abate sectors, including manufacturing industries. Whilst these are likely to transform due to their own corporate goals and supported by the German government’s policies, such as 15 year guarantee of carbon cap difference between coal and green hydrogen[MS1] , and horizontal integration into renewable farms, my main concerns surround the workforce. Germany invested ~$40bn Euros to help approximately 20,000 – 25,000 affected coal employees. Bosch alone has ~80,000 highly skilled engineers specialised in the production of internal combustion engines. These large companies aim to leverage new markets (such as hydrogen and autonomous vehicle technology), but it is a complex task to re-skill these workers. For small and medium-sized enterprises, which play a big role in our industry, the transformation provides even more fundamental challenges as their product portfolio may be required to be completely re-invented.

There is also a debate around what the transition means for households who are suffering from high energy prices and rising inflation. Historically, Germany’s key economic drivers were cheap energy from Eastern Europe, cheap manufacturing from China and cheap national defence support from the US. All three are no longer available in the same form today. It’s a tough problem to solve and accessing new viable sources of clean energy will be the most critical task over the next 2-3 years. 

To add further complexity to the problem, the argument to retain and even accelerate coal production has gained momentum following the onset of the Russia-Ukraine war on 24 Feb 2022. We must continue to look for ways to accelerate our exit from coal with intentions to end mining and burning by 2030.”

Considering the multi-faceted nature of the energy transition, what is your view on the role of government, companies, and other key stakeholders to enable the transformation of hard to abate sectors?

“It’s a multistakeholder process that requires continued and proactive discussions with all market participants. Unions are incredibly important in Germany and play a big role in the transition; they anticipated the direction Germany has been going. Companies and other community stakeholders must also be involved in the process to coordinate and execute the transition. However, the expectation is for Government to manage the transformation and set policies that enable an equitable transition for all.”

With the success and experiences you have had in the German market, what can Australia learn from this in our transition away from fossil fuels?

“It was important for us to get it right in Germany because we were the case study. The most important lesson is that the state needs to facilitate multistakeholder dialogue, make funds available, and manage the transition with the support of a trusted external partner such as professional services, academia and think tanks. Delivering the transition will only be successful with a strong PMO who can support the macro perspective of what the future of the local region will look like as it unfolds. 

It’s also incredibly important to begin the discourse early. There will be challenges as with any transition but with it come opportunities to create future facing jobs, too. Appropriate investment and proactive dialogue will be required to enable these pathways.”

How can we accelerate Australia's decarbonisation journey and energy security whilst balancing costs for the end consumer?

“Everyone needs to start thinking about it, we need to be aware 2050 is a firm target date and there’s only 27 years left. The shift to a renewable future is likely to benefit Australia since you have a lot of sun, and land area, so a high potential in wind and solar energy generation. There is also huge demand and opportunity for green export markets in the APAC region such as Japan, Korea, and Singapore. Market mechanisms by themselves will not be enough to overcome all challenges as questions will continue to be raised around profitability or costs and problems being passed down the value chain. Policy needs to be changed to ensure energy efficiency is critically considered as part of the conversation.”

Thanks for reading

We hope you feel inspired by the insights shared by Prof. Dr. Bernhard Lorentz on Germany’s energy transition and how the Australian market could adopt a similar approach. We would also like to thank Bevin Arnason, Deloitte’s Global Consulting Sustainability and Climate Leader – Commercial, for joining this interview and adding valuable insights from her global perspective.

To learn more about this interview, please contact Struan Buchanan, Victoria Whitaker or Katherine Wannan, or read our piece on Delivering Value through Just Transition.

References:

[1] Neubauer et al. v Germany, Case No. BvR 2656/18/1, BvR 78/20/1, BvR 96/20/1, BvR 288/20