Germany’s Coal Decision: boon for incumbents or start of longer term phase out?
Caroline Kuzemko, IGov Team, 24th July, 2014
Germany, like many countries attempting to transform their energy sectors, has a problem with coal – hard coal and lignite together still made up just over 40% of its electricity generation mix in 2014. Globally, and in Germany, although renewables have grown impressively over the past few years, the impact on emissions has been tempered by the increased use of coal.
As such, for the sake of emissions, something needs to be done about levels of coal use (particularly in electricity generation). Many in Germany have been arguing for a new regulatory framework, the ‘Clima Levy’, that would, in effect, have provided a template for coal’s ‘exit game’. What they got, instead, was a commitment to placing 2.7GW of coal on standby, some of which was already scheduled to be decommissioned in the near term, and a new capacity reserve payment for those plants. The reserve payment will be allocated to companies for not taking part in the energy only market, and the plants (estimated to be 7 in total) will be fully decommissioned only after 4 years. Many in policymaking circles, including the Federal Minister for Energy and Economic Affairs, Siegmar Gabriel, had been in favour of the ‘Clima Levy’, so why was the capacity reserve payment chosen instead?
In a recent conference paper the IGov team suggested that any analysis of current energy governance should take into account the interactions between coalitions for sustainable energy system change and those that wish to slow down and/or prevent energy system transformations. Indeed governance is understood as a means of mediating between these two broad societal coalitions. It also suggested that arguments pursued by incumbent/embedded energy industries, with heavy sunk costs, still lie at the crux of many debates about how to govern energy systems.
On a recent research trip to Berlin the decision against the ‘Clima Levy’, and all the arguments for and against, was ‘the talk of the town’. Leading the charge against the levy were two incumbent gas and electricity companies, RWE and Vattenfall, mainly because coal makes up a large part of their electricity generation mix. One energy stakeholder joked that Vattenfall had been ‘camped out’ in the Bundesministerium für Wirtschaft (BMWi) during the discussion process. Also heavily involved were the Confederation of German Industries (BDI) and a number of coal and energy trade unions. Their arguments against the Levy were:
- Lignite power is low cost, and cheap fuel is important in keeping bills down during the Energiewende;
- By closing lignite fired electricity generation mines would also have to be closed with attendant implications for jobs – this is because lignite (which is 50% water) is very hard to transport over any distance;
- It could cripple two gas and electricity incumbents – RWE and Vattenfall – not only because coal is so important to their electricity generation plants but also because they own lignite mines;
- There might be energy supply security implications, with nuclear plants also being phased out.
The decision against the levy came as a surprise for many progressive energy policy groups, especially given Gabriel’s initial support. On the face of it, it appears as if policy-makers have decided in favour of incumbents and heavy industry at the expense of emissions reductions and the Energiewende. Some have claimed that the German government has, in effect, rewarded RWE’s strategy of keeping open uneconomic lignite plants with the explicit intention of securing a public bailout.
By contrast, one interviewee, who had been heavily involved in policy making discussions about what action to take on coal, suggested that this (heavily compromised) decision has at least put coal on the policy agenda. He argued that this is merely a starting point from which to build, and also pointed out that even two years ago it would have been considered impossible to get coal phase-out on the political agenda. There are, furthermore, many more opportunities for debate coming up on the political calendar: next year Germany must present its 2016 ‘Climate Plan to 2050’; there will be elections in North-Rhine Westphalia in 2017; and general elections late in 2017. The phase-out of coal, it is suggested, will now be on the agenda within these debates.
This process, though arguably a disappointment for progressive energy, is a clear example of the kinds of balancing acts that government actors must perform when considering the detailed practicalities of how to transform an energy system. This was not just a decision about the Energiewende and meeting emissions targets. Policymakers in the BMWi also needed to consider societal impacts of the levy, specifically on employees in mining and electricity industries. As such, this appears as a delaying tactic not just for government, who can revisit the coal issue post the 2017 elections, but also for those employed in industries that, in the long run, may no longer exist in Germany.