ifo Institute research suggests German manufacturers are materially more willing to approve climate-friendly capital investment when expected carbon prices are both higher and more predictable. Across an experiment involving 830 manufacturing companies, the average business moved towards investment once the carbon price remained consistently above roughly €90 per tonne of CO₂.
The findings are based on the February 2026 wave of the ifo Business Survey and cover manufacturers employing at least 25 people. Each company was shown five hypothetical investment scenarios involving a project that would reduce carbon emissions and save energy, with carbon prices varied between €50 and €200 per tonne and the possible range of future price movements varied from zero to plus or minus 100%.
At an expected carbon price of about €50 per tonne, the surveyed companies rejected the proposed investment on average. At €175, the balance moved clearly in favour of proceeding. ifo places current European emissions-trading prices at roughly €70–€90, leaving them near the point at which the average industrial company in the experiment begins to support investment, although a substantial proportion would still hesitate.
Price level was only part of the result. Companies became less willing to commit as the potential range of future carbon-price movements widened, even where the expected average remained high. The researchers calculate that each one-percentage-point increase in the fluctuation range would require an increase of around €1.40 in the carbon price to keep the probability of investment unchanged.
That relationship matters because industrial capital is normally justified over years rather than against a single month’s energy or carbon cost. A manufacturer considering a lower-emission furnace, heat system, production line, or other efficiency project has to compare substantial upfront expenditure with operating savings that may depend on carbon prices throughout much of the equipment’s working life.
If those future prices are highly uncertain, the avoided cost becomes less dependable in an investment model. A project can remain technically sound while its financial case weakens because the company cannot attach sufficient confidence to one of the assumptions used to calculate its return.
The ifo exercise uses hypothetical choices rather than observing 830 companies making actual equipment purchases. The reported €90 threshold should therefore not be treated as a universal industrial break-even point. Individual factories face different energy intensities, margins, financing costs, equipment ages, regulatory exposure, and technical alternatives.
The survey is more useful as evidence of how price and uncertainty interact across a broad manufacturing sample. A company running an energy-intensive thermal process will view carbon cost differently from a lightly energy-consuming assembly operation, but both still have to decide whether a project’s expected savings are sufficiently reliable to justify committing capital.
Political credibility produced a similar effect. Companies that regarded the direction of climate policy as dependable showed greater willingness to invest than those with little confidence in the policy framework. Long-lived industrial equipment exposes owners to repeated changes in regulation, taxation, support schemes, and carbon markets, turning political uncertainty into another financial variable.
Some investments can also be postponed more easily than others. A worn-out compressor or furnace eventually has to be replaced, while a discretionary efficiency project may remain in the capital plan for several years if management is unconvinced by its return. Major process equipment can require long shutdowns and engineering lead times, whereas smaller electrical or heat-recovery improvements can be introduced more gradually.
That leaves carbon pricing competing with other demands on industrial capital. Manufacturers have to fund capacity, automation, digitalisation, maintenance, product development, replacement equipment, and compliance at the same time as decarbonisation. Even businesses committed to reducing emissions still have to rank individual projects against investments that may improve output or reduce labour cost more immediately.
The findings expose a difficult policy trade-off. A weak carbon price may leave higher-emission equipment economically attractive, but simply increasing the price does not guarantee investment if businesses expect the market or political framework to change unpredictably. Stability determines how confidently expected carbon savings can be carried into a capital model.
For equipment suppliers, that uncertainty can show up as projects that remain technically approved but commercially dormant. A lower-emission industrial system may satisfy the customer’s engineering requirements and still fail to receive final authorisation because the expected operating advantage is not considered sufficiently bankable.
The same problem affects manufacturers planning complex plant upgrades. Long project lead times mean companies may have to commit money years before the eventual carbon-price environment is known. Wider fluctuations increase the value of waiting for more information, particularly where existing equipment can continue operating without immediate replacement.
The ifo results quantify that hesitation rather than removing it. Higher expected carbon prices materially increase willingness to invest in the experiment, but wider uncertainty pushes the threshold upwards and reduces the strength of the signal.
For German industry, the practical conclusion is less comfortable than simply arguing for a higher or lower carbon price. Manufacturers appear to respond to both the amount they expect to pay and the confidence with which they can forecast it. Capital can accommodate expensive policy more readily than it accommodates a business case whose central assumptions repeatedly move underneath it.
