Lignite mining like here in western German Garzweiler continues. © [ted007] - Fotolia
21 Nov 2014 | Kerstine Appunn

Debate over future of German coal heats up ahead of climate action plan

Ten days before the plan to fix Germany’s "climate gap" is set for cabinet approval, it is still unclear how much the power sector will contribute toward the carbon emissions target of a 40 percent cut by 2020.

The debate over how Germany is to achieve its climate protection targets has gathered steam and is now focused on the future of coal. Economy and Energy Minister Sigmar Gabriel rejected a quick exit from coal-fired power generation, warning against “exploding electricity costs, energy insecurity” and the prospect of German industry moving production abroad. Trade unions and industry have applauded his stance.

His counterpart in the environment ministry, Barbara Hendricks, along with many environmentalists and analysts, says that the energy sector – and old lignite-fired facilities in particular – bear the greatest responsibility for emissions. They say the only way to meet the 2020 target of 40 percent fewer CO2 emissions by 2020 over 1990, is to cut down on coal-fired power – sooner rather than later.

A story in Zeit Online highlighted the rift between the two ministries – both run by Social Democrats, the smaller partner in the coalition with Angela Merkel's conservative Christian Democrats. Environment ministry officials do not agree with how their counterparts in the economics ministry want to achieve Germany's Energiewende, Zeit Online wrote.

The issue with coal

The first draft of the Climate Action Programme, which aims to reduce emissions by the missing 7 percentage points compared to projections based on current measures, was released last week. (For background on the climate gap see dossier: The energy transition and climate change). Set for approval on 3 Dec., the programme contains few details about what measures could be implemented to reduce emissions from power generation, or the scale of CO2 savings hoped for from this sector by 2020 (instead of citing specific numbers, the programme simply reads, "xx" – see factsheet “The Climate Action Programme – what it’s all about”).

But leaked information from the Ministry for Energy and Economic Affairs had aired the idea of retiring 10 gigawatts (GW) of coal capacity in October – before minister Gabriel shot down the idea of a quick exit publicly. Environmental NGOs Greenpeace, Germanwatch and WWF, as well as the German Institute for Economic Affairs (DIW) have thrown their weight behind this proposal.

The DIW’s Claudia Kemfert said Germany could relinquish up to 13 GW of coal capacity without endangering the stability of the grid – and without pushing up prices for most consumers. This is because  if wholesale prices rise when less power is generated, the renewable energy surcharge added to consumers’ bills will shrink, Kemfert explained. The surcharge pays for the difference between the wholesale price and the set price renewable energy producers are guaranteed by law. As a further welcome effect of removing coal capacity from the market, cleaner but more expensive natural gas plants could start turning a profit again, the DIW said. 

But despite analysts’ assessments and proposals from officials at Gabriel’s own ministry, the minister himself has made it clear that a quick exit from coal in tandem with the phase-out of nuclear power is off the table for now.

The debate is heating up only weeks before the UN climate summit starts in Lima, an occasion where Germany's failure to reach its own climate targets could tarnish its reputation as an ambitious advocate of climate action. At the same time, the government is preparing the next big step for the Energiewende: Last month a green paper laid out the options for a complete overhaul of the power market to adjust to increasing generation from renewable sources. Some proposals suggest payments to fossil-fueled power plants - including coal - for providing standby capacity for times of scarcity rather than – or in addition to – the power they sell on the energy market. However, decisions on the future energy market design are not due till spring 2015, when a white paper is to be published, with legislation expected by the end of 2015.

Gabriel’s stance on coal – which has put him starkly at odds with his Social Democratic Party (SPD) colleague Barbara Hendricks – is being viewed by German media in the light of three current issues: Swedish government-owned power company Vattenfall’s announcement that it is mulling the sale of its German lignite operations, pressure on the minister from SPD-governed states, the interests of trade unions and industry, and Gabriel’s own political ambitions as a possible contender for the chancellorship in 2017.

Vattenfall and the trade unions

Gabriel’s recent remarks – in which he accused climate activists of “blue-eyed eco-populism” – were published shortly after a meeting with Vattenfall employees and in connection with a letter sent to the Swedish prime minister, asking that Vattenfall be sold as a whole instead of splitting off the lignite business from hydropower and other operations.

The minister’s comment also came at a time when SPD-led state-governments in the coal-strongholds of North Rhine-Westphalia and Brandenburg reiterated their position that a quick phase-out of coal would  be harmful their states where jobs still depend on the coal sector. (For more information see factsheet Coal in Germany). Furthermore, Gabriel’s remarks offered reassurance to trade unions, who traditionally have close ties with the SPD. The union for mining, the chemicals industry and energy (IG BCE) has been a critic of the Energiewende, fearing job losses if coal plants and mines are shut down and rising electricity prices drive production abroad. It closed ranks not only with other unions (forming the “Alliance for Reason in Energy Politics”) but also with the business association DIHK (Chambers of Commerce and Industry).

DIHK energy expert Jakob Flechtner told the Clean Energy Wire that trying to close the climate gap for the “very ambitious and purely German greenhouse gas reduction target, should not become a stumbling block for economic development in Germany.” At the end of the day, Germany was only accountable for two percent of worldwide CO2 emissions, he added.

While industry representatives and consultancy McKinsey have floated the idea of modifying the targets if reaching them proves too great a challenge, Gabriel stands with the rest of the German government in maintaining that it is committed to achieving the 2020 CO2 reduction goal. With the next climate summit in Lima following only days after Germany's decision on the climate action programme in early December, the whole debate has international significance, too.

Political ambition

Observers in the German media have noted the growing divide between fellow SPD ministers Gabriel and Hendricks over coal. Comment pieces in Die Welt and E&M Daily believe that Gabriel is working to keep both business and trade unions on side with his eye on the chancellorship after the general elections in 2017. Gabriel has opted to leave the responsibility for shutting down coal plants to the utilities themselves, rather than putting regulatory measures in place that would force their closure.

Letting the utilities decide

The DIHK has applauded his approach, with Flechtner saying more government intervention would be unhelpful and that existing over-capacity in the European power sector should be handled by the market and companies themselves. German media like Der Spiegel and Die Welt have highlighted further options (e.g. premiums paid to utilities who shut power plants) . Think tanks such as the Institute for Advanced Stustainablitily Studies (IASS) and the Öko-Institut as well as environmental lobby groups such as Greenpeace and Germanwatch/WWF have also tabled their own proposals (e.g. emission performance standards that shorten the run-time of old coal plants).

As the price for electricity on the wholesale market dwindled in past years, some utilities have already applied for closing down power plants but as new capacity is added at the same time, this will not have a great effect on emissions, the DIW found.

Analysts at the Öko-Institut as well as Germanwatch and WWF also insist that accompanying measures will be necessary if coal is to be driven out of the market fast enough to have an impact on emissions by 2020. Researchers at the Fraunhofer ISE also highlight that left to its own devices, the market has resulted in very low electricity prices that drove (comparatively clean) gas-fired power plants out of the market, while old lignite stations earned. Without being leaned on in some way, utilities would have no interest in shutting down the plants responsible for the highest emissions, particularly while the European emissions trading system (EU ETS) fails to put a significant price on keeping them running, the institute argues.

Would German emissions move abroad?

Still, the EU ETS is the intervention in the power market that Gabriel, the German Association of Energy and Water Industries (BDEW) and utilities such as E.ON, Vattenfall and RWE can all get behind. In the draft Climate Action Programme, the government says it wants to see it strengthened. Lowering emissions by phasing out coal now would only release cheap allowances onto the market, giving other countries and power stations license to emit more CO2, Gabriel said last week.

But some experts dispute this idea. “Compared to the current over-supply of two billion allowances, an added 20 to 50 million from the German market would hardly make a difference – the problem of over-supply must be addressed anyway,” Dominik Schäuble, research associate at the IASS told the Clean Energy Wire. And Martin Cames from the Öko-Institut in Berlin said that prices on the emissions market are not only determined by the supply of additional allowances but are influenced by the long-term expectations of traders and industry, making it impossible to safely predict the effect of a German coal phase-out.

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