Funding the Energy Transformation at Home AND Abroad!

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Funding the Energy Transformation at Home AND Abroad!

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Germany’s Chance and Challenge

July 5, 2011
Liane Schalatek

By Liane Schalatek

Observed around the world with varying degrees of curiosity, high expectations and hopes, skepticism, potential good will or schadenfreude, Germany, Europe’s largest economy, has embarked on probably the furthest reaching energy transformation of any industrialized country by its recent government decision – confirmed by a parliamentary vote end of Juneto phase out nuclear energy by 2022.  This will be a costly endeavor, no doubt, a multibillion-dollar experiment to improve the country’s electricity grid and scale up generation and use of renewable energy domestically.  If Germany’s great energy transformation effort succeeds, other industrialized countries will have a harder time arguing that a low-carbon energy transformation will necessarily cost jobs, reduce a country’s economic growth and threaten its global competitiveness.

Yet, the German experiment can only then be judged a true success, if Germany does not fund its national energy transformation  at the expense of its international obligations and pledges to help developing countries finance their own low-carbon and climate-resilient development.  Funding both the energy transformation at home and internationally at the same time, without short-cuts and excuses:  this  will set Germany apart from the rest of the industrialized world and cement a true German leadership position in climate actions globally …

The challenge is more than hypothetical. Already, before the recent decision to phase out nuclear energy, Germany has been hard pressed to fulfill its climate finance pledges under the Fast Start Finance initiative to provide a total of € 1.26 billion (or € 420 million per year) from 2010 to 2012 as part of the US$ 30 billion promised. Most of the money provided so far by Germany as fast start funds is clearly not additional to its existing development aid obligations.  Germany will also have to significantly ramp up its spending for international climate action in line with the commitment of developed countries, confirmed at the climate summit in Cancun last December, to raise US$100 billion annually by 2020. However, last fall, almost all of the total € 1 billion in future spending additional to regular budgetary contributions for international mitigation and adaptation until 2017 that the German government had set aside under a new German special purpose energy and climate fund, has been blocked by appropriators in light of budget consolidation talks in Berlin –hopefully only temporarily. 

That special purpose fund, with the aim of promoting environmentally-friendly, reliable and affordable energy at home and abroad, had been set up by an act of parliament (Gesetz zur Errichtung eines Sondervermögens “Energie- und Klimafonds” – EKFG) only last fall following the parliament passage of a new German Energy Concept. Under the concept the operating times of the seventeen German nuclear power plants were extended in exchange for “voluntary” payments by the operators of Germany’s nuclear power plant of close to € 1.4 billion into the special fund until 2017. The other significant source for the special purpose fund was a portion of the revenue from the auction of Germany’s emission allowances under the EU’s Emission Trading System (ETS).

Following the Fukushima nuclear disaster in Japan, Germany in April had declared a 3-month nuclear power moratorium, and Germany’s nuclear power companies had suspended their payments into the special purpose energy and climate fund.  With the nuclear phase out now decided, it has become necessary for the German government to revise the special purpose fund, its funding sources and funding purposes.  Starting in 2012, for example, the special purpose fund will receive all proceeds from German’s emission trading under the ETS; this will add up to € 900 million in 2012, but could reach as much as € 3 billion per year from 2013 on, when all German emissions permits will be auctioned off (currently, some energy companies still receive permits for free). 

The first draft proposals have worried civil society observers who fear that the reform of the special purpose fund – while most likely budget-neutral in 2012 — might come from 2013 on at the expense of Germany’s overall support for international climate action.  While the jury is still out – too many of the details are still are not confirmed yet and more conclusive numbers are hard to come by –, German experts following the issue have raised a number of red flags:

  • •International climate finance is already only one of several funding purposes listed for the special purpose fund; as a matter of fact, with the revision, language so far obligating the spending of the money on energy efficiency, renewable energies, energy storage and grid technologies, improvement of energy systems in buildings and national climate protection in addition to international climate actions will be weakened from a “must” to a “can”- provision. Also, electromobility (so far funded through the normal budget) will be added and could detract hundreds of millions yearly from the other tasks and especially international climate support .•The draft of the revised bill for the special purpose fund also allows to pay up to €500 million per year starting in 2013 to energy-intensive businesses as compensation for rising electricity costs under new emissions trading schemes – an expenditure in direct contradiction to the intended goals of the fund.
  • •According to a note published in the German daily “taz” recently, the German government in an answer to a parliamentary inquiry by the Green parliamentary faction, proposes to use up to 5 percent of the special purpose fund between 2013 and 2016 for the construction of new highly-efficient coal and gas-fired power plants from smaller German power companies controlling less than 5 percent of the German electricity generation market.
  • Under the special purpose fund, money provided for international climate action is supposed to be spent in addition to other regular budget appropriations for international mitigation and adaptation support, for example via the budget of the German Ministry for Environment (BMU) and the German Development Cooperation Ministry (BMZ).  This includes initiatives such as the BMU’s International Climate Initiative (ICI), which for the past few years has disbursed close to € 120 million annually.  While the ICI appears to be funded for 2012, starting in 2013 its future is uncertain. Observers fear that while the initiative – which has brought Germany international acclaim – itself will not be cut entirely, its future funding might very well be.
  • So far, there is no proposed distribution formula for national versus international climate obligations to be funded under the revised special purpose fund.  This is worrisome; it might encourage a shortchanging of international climate support for domestic climate-related expenditures.  In order for Germany to fulfill its quantitative commitments for long-term climate financing, experts demand that from 2013 on at least a third of the special purpose fund’s revenue should go to international mitigation and adaptation efforts. With an estimated € 3 billion a year in revenue from emissions trading, this could add up to more than € 1billion annually.  However, this money has to be in addition to regular budget expenditures, not substituting for them.

While the discourse over the implications of the costly national energy transformation needed for a future nuclear-free Germany for international climate finance has centered mostly on securing and increasing the quantity of Germany’s support for international climate action, the qualitative dimensions of this discourse should not be forgotten.  Germany’s international climate finance obligations do not exist in a norms-free zone.  International human rights and environmental standards and principles exist that need to guide Germany spending for international climate actions, irrespective of whether allocation and disbursement is channeled via  the special purpose fund or Germany’s normal budget process.  While Germany has taken a number of steps in the right direction, significant improvements are possible and necessary, including more support for adaptation efforts internationally and a larger provision of funding in form of grants to implementing entities on a state and subnational level  in recipient countries.

A principled approach to Germany’s public climate financing – one that does not shortchange international climate obligations for domestic energy priorities and does not only increase the quantity, but also the quality of German international climate finance in line with the country’s international obligations in climate, environment and human rights conventions – will go a long way to make sure that its visionary domestic energy transformation can be replicated widely internationally, especially in developing countries.

Liane Schalatek is Associate Director of the Heinrich Boell Foundation. This article was first published on