28 Nov 2019, 09:00

Implementing Germany’s coal exit proposal – the road ahead

Germany's coal exit commission has agreed on a proposal on how the country can manage to phase out its single largest source of greenhouse gas emissions by 2038, and the ensuing political decision-making process is in full swing. Chancellor Angela Merkel's government coalition has to decide how to implement the non-binding proposal and is drafting necessary legislation. Many details have yet to be worked out and ultimately decided by parliamentarians in a process that could last well into 2020. In this factsheet, Clean Energy Wire lays out the basics of the ongoing political process to translate the German coal exit into action. [UPDATES to 28 November]

Also read our full package on Germany's coal exit in the dossier Europe's largest economy aims to exit coal to reach climate goals. To stay abreast of most recent developments, search for the hashtag #coal, and also follow us on twitter @cleanenergywire.

 

Government must translate proposal into action

In late January 2019, Germany's coal exit commission agreed on its highly anticipated phase-out proposal and recommended to end coal-fired power generation by 2038 at the latest. On almost 300 pages, the commission provided detailed suggestions on a wide range of aspects, but at the same time also omitted crucial questions – such as which power plant should be switched off at what time. Policymakers now have to find an answer to these moot points if the commission's carefully balanced phase-out plan is to be observed.

From the onset, the commission’s final report was meant to serve as a general blueprint for political decision-making rather than a detailed manual on how to proceed. However, according to the commission's leadership, the proposal takes the interests of all main stakeholders into account, which is why it urges the government to follow its recommendations as closely as possible.

The structure of Germany's federal political system brings with it that both the federal parliament (Bundestag) and the council of state governments (Bundesrat) have to give their consent to many aspects in the legislative process of a coal phase-out. [This factsheet gives a brief overview of German law-making on energy and climate issues.]

Photo of Germany's Bundesrat building in the capital Berlin. Source: Bundesrat.
State government representatives in the Bundesrat have to agree to many aspects of a German coal phase-out in the legislative process. Photo: Bundesrat.

In the end, state governments will have to implement the coal exit at regional level, for example through licensing future lignite mining projects or deciding which infrastructure investments are most pressing to give the regions an economic perspective that goes beyond coal.

Before parliamentarians get involved in each step, however, the federal government first has to decide which details of the process it aims to adopt and draft relevant legislation. Chancellor Angela Merkel's government remained rather vague for some time. It started by “closely and constructively reviewing” the commission’s final report, while signalling general support. “The fact that a commission made up of such different societal groups has found an agreement and created a framework is an important message for us. We will handle this very carefully,” Merkel said.

With the Climate Action Programme 2030, which the cabinet adopted in October 2019, the government officially accepted the commission's recommendations. The government said it will "implement [the coal commission's consensus] in close coordination with the federal states.” Thus, the coal exit is also one element of the climate package meant to ensure that Germany reaches its 2030 targets.

The government presented a first set of key decisions on structural economic support of the coal regions in late May, then a draft law in August, which is now being debated in parliament. In parallel, the economy ministry is working on the actual coal exit legislation.

Twofold implementation process

The future process of implementing phase-out will be split up into two fields of action:

A. Structural economic change – support for lignite mining regions

B. Energy and climate policy legislation

Economy and energy minister Peter Altmaier said Germany will need two major laws to implement the phase-out plan. One on support for mining regions, the other on the timetable for coal-fired power plant shutdowns. However, several additional laws, amendments to existing legislation or regulatory changes will be necessary.

A. Support for mining regions

From the beginning, the economic future of lignite mining regions was considered a key task of the coal exit commission, as reflected in its official title “Commission on Growth, Structural Change and Employment.”

The government adopted a draft law (“Strukturstärkungsgesetz Kohleregionen”) in August 2019 submitted by minister Altmaier, which is aimed at strengthening the mining regions following the country’s coal exit. It would allocate up to 14 billion euros in grants to the lignite mining regions until 2038. The grants are aimed at stimulating the economy in a wide range of areas, such as business-related infrastructure, improvement of public transport, broadband and mobility infrastructure, environmental protection and landscape management.

Additionally, the federal government would support the regions with up to 26 billion euros through further measures, such as the expansion of research and development programmes and the establishment of federal institutions. The government plans to speed up the expansion of transport infrastructure in the regions. The economy ministry will oversee a newly created high-level federal and state body that will play a central role in ensuring a rapid flow of projects. The government aims to lay the groundwork for the coal regions to "use the coal exit as an opportunity” and "turn into modern energy and economic regions,” said minister Altmaier.

The draft is currently being considered in both the Bundestag and the Bundesrat.

B. Energy and climate legislation

The implementation of the coal exit commission’s proposals for the energy sector requires the amendment of several existing laws, such as the Renewable Energy Act (EEG) or the Combined Heat and Power Law (KWKG).

The timetable for shutting down coal-fired power plants is among the more contentious pieces of legislation as individual regions, companies and jobs are directly affected.

Graph shows installed coal power generation capacity before and after the potential coal exit according to Germany's coal exit commission. Graph: CLEW/Appunn 2019.

However, the main piece of legislation will be a “coal exit law” which first deals with hard coal and will later be amended to include lignite as well – once the government has finalised negotiations with lignite companies about the shutdown schedule and possible compensation payments. The government has said that lignite and hard coal would be handled with different measures because of differences in emissions intensity and because hard coal has to be imported, while lignite is mined close to the power plants.

The economy ministry sent a first draft of the coal exit law, included in a wider package of energy legislation amendments, to the other ministries for coordination in November. [Find a factsheet on the draft here.] The law has yet to be agreed by the cabinet (expected for early December) and will then be sent to parliament for the regular legislative process.

The draft stipulates auctions for operators of hard coal plants to take capacity off the grid according to the government’s timetable. The first auction would take place in July 2020 to take 4 gigawatts (GW) offline by the end of that year. The document has been criticised for no longer stating that utilities would be forced to deactivate hard coal power plants by 2026 if not enough closures happen voluntarily. Also – in contrast to the coal commission’s recommendations -- the current draft does not say that EU Emissions Trading System (ETS) allowances are cancelled to avoid simply shifting emissions to European neighbours.

The preservation [of Hambach Forest] is politically and socially desired, and we also want to make it possible. I am optimistic, because the [coal] commission's recommended phase-out means that we need less lignite for our power stations.

Rolf Martin Schmitz, CEO of RWE

The draft leaves out the key question of how to deal with lignite plants, as the government is still in talks with operators about compensation payments for the closure of plants and mines. The government has said there was a general agreement with operator RWE that the first lignite shutdowns should happen at older plants in western Germany. “We have said we as RWE will carry the main burden” in regards to the 3 GW capacity in planned shutdowns by 2022, CEO Rolf Martin Schmitz told Deutschlandfunk.

The coal exit commission recommended settling questions related to compensation for operators of lignite plants as well as for employees in “mutual agreements.” Talks are ongoing and Schmitz said meetings are held almost every other day. The Rheinische Post reported on 27 November that the talks would stretch into December at least. Schmitz said it is realistic that a solution could be found by the end of 2019.

RWE has said it estimates costs of 1.2 to 1.5 billion euros for each GW  of power plant capacity switched off. 

However, the federal parliament’s research service in late February concluded that the German state is not necessarily liable to compensate coal plant operators. While compensation might be paid in certain cases of “otherwise unreasonable economic burden,” the proposal as it stands does not put any such burden on individual plants. In April, the government stated that "possible" compensation payments were still subject to the review procedure.

Should mutual agreements not be found by the 30 June 2020 deadline, the commission recommended settling the dispute “by regulatory law,” which would mean that the government decides which plant has to shut down, and when to provide planning security and ensure uninterrupted power supply. For now, it is unclear whether the government plans to include such a provision in the coal exit law.

A concrete plan for switching off individual power stations could also be decisive for whether or not the embattled Hambach Forest can remain intact or will be cut down by utility RWE to expand a nearby lignite mine.

RWE head Schmitz told newspaper WAZ in October 2019: "The preservation is politically and socially desired, and we also want to make it possible. I am optimistic, because the [coal] commission's recommended phase-out means that we need less lignite for our power stations."

Schmitz told Deutschlandfunk this would cost an additional 1.5 billion euros compared to earlier plans for the nearby lignite mine.

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