Germany’s fight against coal gets underway – albeit slowly

Germany’s fight against coal gets underway – albeit slowly

Germany’s energy transition – or Energiewende – is essentially about two trends: the rapid build-up of renewable energies and the phasing out of nuclear power. Germany will close all nuclear power stations by 2022 and, by the middle of the century, generate up to 80 percent of electricity from renewable energy sources. In recent months, however, the fact that the transition is not yet curbing the country’s carbon emissions has taken away some of the initial enthusiasm. This is a serious drawback: if the German energy transition should prove ineffective on the climate front, it will fall short on its declared objective and discourage other countries from following suit.

A new study by the German Institute for Economic Research (DIW Berlin), commissioned by the Heinrich Böll Foundation and the European Climate Foundation and presented on November 19 in Berlin puts it bluntly: Germany’s short-term 2020 climate targets are in jeopardy. Back in 2007, the country committed itself to a 40 percent reduction in greenhouse gas emissions compared with 1990 levels. These goals were officially reaffirmed in 2010 and 2013. But with no change in current policy, the country will reach a mere 35 percent emissions reduction by 2020 – at best. Estimates by the Federal Ministry of Environment predict a mere 33 percent decrease. Reducing greenhouse gas emissions rather than ensuring a smooth and affordable build-up of renewables – believe it or not – has thus become the next major challenge of the Energiewende.

How did we get here?

Between 1990 and 2013, emissions in Germany fell by 24 percent. The lowest level was reached in 2009 during the financial crisis, but, since then, emissions have seen a steady increase. In addition, the role of coal in the power mix has grown over the last years. Highly inefficient coal plants were kept online while modern gas-fired power plants were retired due to the price differential between cheap coal and expensive gas.

Originally, the Europe-wide emissions trading scheme (EU-ETS) was intended to keep European carbon emissions in check. Yet it is no secret that this system is failing its primary purpose since the current carbon price – around 6 EUR (USD 7.50) – is too low for the trading scheme to curtail emissions, due to over-generous allocation of carbon credits combined with slow economic growth in many European countries. Last year’s decision to postpone the auctioning of 900 million new carbon allowances until 2019-20 will have no practical impact on Germany reaching its 2020 targets, and a serious reform of the system is not expected anytime soon. Policy makers in Berlin, realizing the system’s shortfalls, have sought to hide their own inaction behind that of the EU. However, with an increasingly heated domestic discussion on German emissions targets, it’s high time for German politicians to get serious.

The shortfalls of the emission-trading system have been exacerbated by the increase in Germany’s power exports, which made up around 5 percent of her total power generation in 2013 – equal to 33.8 TWh. There are thus large excess capacities in the country’s power production, and in a way, Germany is paying the price for carbon for its neighboring countries’ electricity consumption.

What is to be done?

According to the DIW study, Germany’s CO2-output needs to be reduced by 70 million tonnes of CO2 per year – i.e. 7 percent – to keep Germany on track with its greenhouse gas reduction targets for 2020 (the 2050 target, i.e. reductions of 80 to 95 percent, would also be threatened if Germany misses its emissions reduction path by 2020). But meeting the 2020 goals is central for Germany’s international credibility as the international climate talks in Lima and the pledging phase for the Paris Conference in 2015 get underway.

There are different options for solving the carbon problem. Obviously, greater efficiency measures in buildings and in the industrial, transportation and agriculture sectors would help. But a more rapid build-up of renewables and increasing efficiency levels in the power sector are also viable options. The DIW study examines various ways in which the electricity sector, where hard coal and lignite are responsible for almost 85 percent of emissions, could be made less carbon intensive. In essence, its authors propose switching off large parts of Germany’s coal plant fleet which are old, inefficient and highly CO2 intensive. The study’s main scenario foresees a closure of 3 GW of hard coal, and 6 GW of lignite plants which would lead to a decrease in emissions of about 23 million tonnes of CO2. This would correspond to about a third of the climate gap. The moment for such a decision, they claim, is particularly good now due to current low wholesale electricity prices, excess power capacities and the high level or power exports.

In 2013, hard coal represented 19 percent, lignite 25 percent of total electricity generation, and more than half of all hard coal power plants (26.5 GW) were over 30 years old. Germany is already set to retire the hard coal mining sector by 2018, so an additional retirement of the dirtiest coal plants could lead to cost efficient solutions. At the same time, wholesale prices for electricity would rise back to normal levels providing utilities with more revenue, and flexible cleaner gas-fired power plants would become more competitive with coal.

Switching off while maintaining reserves

The electricity sector will thus have to play an important role in meeting Germany’s climate goals. In October of this year, the Federal Ministry for Energy in a Green Paper presented an overview of official proposals how best to encourage reforms of Germany’s electricity market to assure security of supply. Since discussions on the reform of the electricity market are already well underway, it may be favorable to include discussions around curbing emissions in the power sector. After all, the Green Paper calls for reforms that go hand in hand with Germany’s climate goals with more flexible power, profitable with fewer operating hours at a lower CO2 intensity. These criteria would thus be met by shutting down the country’s oldest and most inefficient coal plants.

Today, on December 3, the German government announced its climate action plan on how it will still reach its 2020 targets. The plan aims at avoiding an additional 62 to 82 million tonnes of CO2 per year by 2020. Besides major energy efficiency measures in the building sector (savings of up to 25 to 30 million tonnes of CO2), emissions from coal plants are to decrease by 22 million tonnes per year by 2020. This amount will be equally distributed among all power plants (the exact details of this process are still unclear), equaling the shut-down of around eight lignite and hard coal plants.

One thing is clear: Germany is realizing that it has a coal problem and is now taking first steps to fight the challenge. By the middle of the century, coal will have lost its prominent position in the country’s power mix due to the growing role of renewables. Yet the decisions taken today become ever more important in paving the way for a smooth energy transition away from fossil fuels into a low carbon era. In the end, Germany’s energy transition as a role model for other countries will also be measured by its success to curb emissions.