02 Jul 2015 | Jakob Schlandt

German government shuns coal levy, mothballs some lignite plants

Germany will not impose an additional climate levy on old and dirty power plants. In late-night negotiations, the ruling government coalition buried a levy proposal, choosing instead to mothball and later decommission some lignite power plants that are most harmful to the climate in terms of emissions. The government hopes to close a gap that is keeping it from reaching emissions-reduction targets, using a host of other measures.

Energy minister Sigmar Gabriel, a Social Democrat, initially proposed that particularly dirty and old coal power plants would have to pay for extra emissions certificates. This would have helped Germany reach its 2020 goal of reducing greenhouse gas emissions by 40 percent over 1990 levels. Staunch opposition from power industry unions, utilities, mining regions, as well as from within both government coalition parties, forced the government to look for an alternative.

Now, part of the necessary reductions will come from placing lignite power plants with a capacity of 2.7 gigawatts (GW) in a so-called capacity reserve, a backup for the power market in times of need. Some plants will stop operating but be kept on reserve to fill gaps in power when renewables like sun and wind are in short supply. Electricity consumers will pay the bill for this reserve, which will be introduced gradually starting in 2017. Critics argue this money will be wasted as it is unlikely the reserve will ever be needed. That's because Germany still has far too much generating capacity.

The closure of plants will make up  just over half of the 22 million tonnes in additional emissions cuts required per year. The other half will come from an array of smaller measures, mostly incentives for industry to invest in efficiency measures. Also, an additional contribution from the lignite industry will be factored in with 1.5 million tonnes. How this will be done has not yet been decided. Gabriel stressed that the agreement is still a success in terms of the Energiewende, initiating the long-term exit from coal power production. "For the first time in Germany, 13 percent of lignite plants will be mothballed," he said.

Reactions from environmental activists were mixed. Deutsche Umwelthilfe (DUH, German Environment Aid) said in a statement that the winners would be "large utilities that have missed the energy transition and will now receive a golden goodbye, financed by the public." The agreement would not be in tune with the promises of Chancellor Angela Merkel to fight climate change at the recent G7 summit in Elmau. Greenpeace protested in front of the energy ministry, waving a banner reading: "Coal exit: Promise made in Elmau, promise broken in Berlin." Merkel had been one of the driving forces behind a non-binding agreement in Elmau that industrialised countries should reduce their greenhouse gas emissions drastically over the next decades.

However, others stress the positive aspects. Environmental NGO Germanwatch called the decision a "pyrrhic victory" for coal. There were many signs the decision marked the beginning of the end of coal, said policy director Christoph Bals in a statement. The coal lobby had succesfully killed a policy instrument that would have reduced the use of coal in an effective and cost-efficient way. "But after this debate, one thing is clear to everyone: The end of coal and how it can be organised in a socially just way is squarely on the German political agenda...Many politicians say in private that they have bailed out the fossil lobby one last time."

Agora Energiewende, a Berlin-based think tank, called it a "significant" achievement. "It is the first concrete step of a German coal phase-out - something noone would have expected a year ago. It is also a strong signal that Germany still sees itself as a frontrunner in climate ambition," a statement read. In November, Gabriel was reported to have said that the climate target was not achievable and stated publicly that it would not be possible to exit nuclear energy and coal at the same time. Germany's nuclear power plants will be switched off one-by-one over the next years, with the last going offline in 2020.

The Mining Union IG BCE, which had lobbyied against the climate levy and suggested the agreed-upon model, welcomed the decision. “After a long and tough debate, solutions were found that are good for the climate, as well as for jobs and industrial locations," said union head Michael Vassiliadis. "They combine the government’s climate targets with economic reason and social responsibility. That is a balanced outcome and deserves respect and support,” he said.

Shares of RWE, the German utility most heavily involved in lignite power production, jumped by more than five percent following the decision, while Frankfurt's blue-chip DAX Index even posted small losses.

The ruling coalition also made a decision on the future design of the German energy market. Most importantly, Germany won't opt for a so-called capacity market, like those recently introduced in France and the UK , to pay for keeping power on reserve. There will only be a capacity reserve (including the abovementioned lignite power stations) to help out in times of potential market failure and undersupply of electricity. The energy market will be reformed in a package dubbed "power market 2.0".

Energy minister Gabriel said the governing coalition had reached "a historic agreement for new prosperity." He added that the government had "tied all loose ends of the energy transition together" and would make it irreversible.

In addition, the political row in the coalition about extending Germany's electricity grid (mostly connecting the windy north to the consumption-heavy south) has been settled. The CSU, the Bavarian conservative party, had opposed plans to build two of the three main electricity corridors across its teritorry. Most importantly, the coalition green-lighted the extensive use of underground cables instead of overhead power lines. "The additional cost is justified, because it will raise acceptance," reads the agreement. Also, the coalition agreed on details about the two lines that connect to Bavaria, specifiying that some of them will be built on existing power grid corridors. Others will circumvent certain controversial areas.

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