26 Nov 2014 | Kerstine Appunn

Critical reception for government plans to cut power sector emissions

The German government looks set to approve plans to force the power sector to reduce carbon emissions by an additional 22 million tons by 2020. Environmentalists worry the plans don't go far enough and are calling for more coal-fired plants to be retired. But business lobbies warn of rising electricity prices, and utilities want the issue tackled in conjunction with reform of the power market.

Germany’s power sector must cut 22 million tonnes CO2 emissions by 2020 – this proposal by Energy and Economy Minister Sigmar Gabriel was all but confirmed in a meeting of the grand coalition parties yesterday evening in Berlin, according to media reports. Next week, the cabinet will decide on a Climate Action Programme designed to put Germany back on track for its self-imposed target of a 40 percent CO2 reduction by 2020.

In a meeting with plant operators, Gabriel had reassured utilities on Monday that they will be responsible for deciding which power stations they close down - and when - in order to save 4.4 million tonnes of CO2 per year starting in 2016.

Still, industry voiced immediate concerns and utilities called for conditions in the power sector to be looked at as a whole, particularly in light the future design of the power market, the next big decision looming in Germany’s energy transition, or Energiewende. They were backed by some members of the grand coalition, with Joachim Pfeiffer of the Christian Democrats (CDU) telling the Clean Energy Wire that forcing coal power stations to close would endanger “competitiveness, jobs and Germany's status as a business location.”

Meanwhile, members of the opposition and environmentalists doubt if the proposed reduction will be enough to achieve the 40 percent emissions cut in time. But with only a week to go before a final decision on the climate protection action programme is due, Gabriel’s suggestions for the first time filled some gaps in the draft programme, particularly on the contribution to be made by the power sector and the future of coal in Germany.

Keeping the utilities happy

“The companies' reaction was reserved but friendly,” Gabriel told the press after he discussed his proposal with representatives of the four big power suppliers and the sector’s lobby group, BDEW. “We have made it clear that the power sector cannot make one-sided concessions under the current conditions [in the German power market],” the BDEW replied in a joint statement with the network of German Association of Local Utilities (VKU).

Hard coal- and gas-fired power plants in particular - many of them owned by the big four utilities Vattenfall, E.ON, EnBW and RWE - are struggling as the wholesale price for power fell to 38 euros per megawatt-hour in 2013, one of the lowest in Europe. The surge in renewable power, falling prices for coal as well as low costs for emissions certificates in the European Emissions Trading System have all contributed to the decline on the wholesale market.

Analysts from the German Institute for Economic Research (DIW) have pointed out that closing down old coal-fired power stations could help the remaining operations turn profits again as the market price for electricity would rise. But the BDEW would also like to see exit premiums paid to unprofitable power stations, the dpa reported. Gabriel called this a no-go on Monday, at the same time hinting at a “capacity reserve” whereby payments could be made to otherwise retired power stations to remain on call to tackle low supply from naturally fluctuating wind and solar power. Plans for a new power market design are underway and will be finalised by the end of 2015.

Whatever the final emissions law will look like, German media has pointed out that the legislator will have to make sure that no compensation claims will be brought forward by the utilities. A utility representative was quoted by the Süddeutsche Zeitung as saying: “We will not accept new interventions in the energy sector’s property, as happened in the accelerated nuclear phase-out (of 2011)."

Industry in fear

While plant operators can see some benefits in the emissions cap and rising power prices, these are a big concern of German industry – and the economy minister. A study by the Federation of German Industries (BDI), released on Monday also warns that tens of thousands of jobs could be lost by 2025 if electricity prices rise.

“Shutting down power stations damages the competitiveness of German industry without any benefit for the climate," BDI director General Markus Kerber said. Gabriel, who in recent weeks emphasised that he wanted to avoid a simultaneous phase-out of nuclear power and coal for exactly these reasons, promised yesterday that stable power prices and energy security sit alongside the climate protection targets as his “ultimate ambition”.

Some politicians from the coalition of Social Democrats (SPD) and Chancellor Angela Merkel’s Christian Democrats (CDU/CSU) remain wary. “The Energiewende is already like open heart surgery on our economy,” said Michael Fuchs, deputy head of the CDU/CSU parliamentary group in Berlin, warning that legislation that could harm German businesses' competitiveness should not be rushed.

But Christoph Bals, Policy Director at environmental NGO Germanwatch was sceptical of this view. “A bigger problem than electricity prices is stagnating demand in Europe since the economic crisis," Bals told the Clean Enery Wire. "But investments in the grid, wind power and energy efficient retrofitting can help to increase demand again."

"The BDI is lying to itself and others when they dramatise the risks to jobs but do not mention the opportunities for new jobs at the same time,” he added.

Is 22 million tonnes CO2 enough to fill the gap?

While the BDEW called Germany’s climate protection target a “national solo”, the proposal to cut 4.4 million tonnes of CO2 each year from 2016 onwards failed to convince the Green party and environmentalists. Emissions from Germany’s power stations (45 percent of electricity generation currently comes from coal) amount to 341 million tonnes per year and the aim is to reduce these emissions to 319 million tonnes by 2020. Of the four large utilities, RWE-owned plants emit 125.7 million tonnes CO2, Vattenfall’s stations 70 million, and those owned by E.ON 35 million, and EnBW’s around 20 million. 

Environmental groups Germanwatch and WWF have called for a 100 million-tonne CO2 reduction from the sector in order to bridge the gap between the greenhouse gas emissions target and predicted emissions for 2020. “If Gabriel wants to shut down additional coal plants worth 22 million tonnes CO2 on top of some 30 million tonnes that will be saved from very old stations that will go offline in the coming years, this will close half of the gap,” Christoph Bals explains.  

Meanwhile Joachim Pfeiffer, as well as politicians of the Green Party and Ottmar Edenhofer, Chief Economist at the Potsdam Institute for Climate Impact (PIK) supported Gabriel’s initial approach to a coal phase-out in Germany: it would not do to have German power generation from coal reduced if the European Emissions Trading system leads to the same amount of coal burned - and CO2 emitted - in neighbouring countries instead.

“Germany has achieved the largest reduction in greenhouse gas emissions in all of Europe (…), but shutting down fossil fuel power stations by 2020 would result in a zero-sum game which would not benefit the climate at all,” Pfeiffer told the Clean Energy Wire.

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