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€40-Billion Compensation Plan to Drive Germany’s Coal Phaseout by 2038

Arnoldius/Wikimedia Commons

National and regional governments in Germany have sealed the deal on a €40-billion (US$45-billion) plan to phase out coal by 2038 and fund a realistic transition for workers and communities that still depend on the industry.

“The government will draft a law this month for exiting from coal, which it hopes to get passed by parliament in mid-2020,” BBC reports [1]. “Coal currently powers about one-third of Germany’s electricity, and more than half of that relies on burning lignite,” of which the country is the world’s biggest producer.

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“Germany has embarked on something really big. And I’m sure that we’ll manage this,” said Finance Minister Olaf Scholz. “

“These were tough negotiations,” added Environment Minister Svenja Schulze said. “But you can see the result—we are the first country that has a binding agreement to exit coal and nuclear power—and that’s an important signal internationally.”

Depending on the pace of the phaseout, the target date could be advanced to 2035. “The date for plant closures was set by a diverse, government-appointed coal commission [3] that included industry, environmental groups, and unions,” Greentech Media writes [4]. Bloomberg News says renewable power could drive coal out of the German electricity mix “long before” 2038.

“Solar, wind and other forms of renewables already have become Germany’s biggest source of electricity and will cut deeper into coal’s share in the next few years,” the news agency notes. “The government forecasts that green power will make up about 80% of the electricity mix by 2038, compared with just over 40% now,” and “higher carbon prices may gut profit for whatever [coal] plants are still able to run.” 

Reuters says [5] the government will cap emissions and help drive up those prices by cancelling coal plants’ carbon emissions certificates as they close.

“The political message in the agreement is that the government is willing to pay for coal to be taken out of the market,” said EU climate and energy specialist Goetz Reichert of the Centre for European Policy in Freiburg, Germany. But that just echoes the message the market has been sending for some time.

The compensation plan “will target four German states which have lignite mines and coal-fired power plants: Saxony-Anhalt, Saxony, North Rhine-Westphalia, and Brandenburg,” the broadcaster adds. “Much of the money will go into new infrastructure projects for coal-dependent areas and retraining workers for new jobs there.”

Already, Germany “has more than 250,000 workers in renewable energy sectors—far more than in the coal industry,” BBC writes.

But “coal remains at the heart of many communities in Germany, even as the total employment figures in the sector have dwindled,” Greentech Media notes. “The German soccer team Borussia Dortmund, based in the heart of coal country, marked its 110th anniversary last year with special edition all-black uniforms dubbed ‘coal and steel’.”

Under the deal, “the oldest, dirtiest plants, some dating back to the 1950s, will go first, starting with a 300-MW plant in the Rhineland scheduled to close this year. Over the following 18 years, the remaining 29 will close,” Reuters writes. “The decision marks a major turnaround for Chancellor Angela Merkel’s conservative-Social Democrat coalition. It abandoned as unachievable a key emissions target shortly before taking office in 2017, only to change course after growing public concerns about climate change fuelled a surge in polls by the Green Party.”

In the end, “what we have here is a good agreement for climate protection because it makes it clear that we mean business,” said Economy Minister Peter Altmaier.

But “not everyone is so enthusiastic,” Greentech cautions.

Mammoth electricity producer RWE [6] “will be the most heavily impacted among Germany’s utilities,” the industry newsletter states. “The first eight plant closures, running through 2022, will all be RWE plants, with a total generation capacity of more than 2.8 gigawatts. In total RWE will be closing down just over 8.7 gigawatts of capacity and cutting 6,000 related jobs by 2030.” The utility is expected to draw €2.6 billion from the phaseout fund, but still absorb €900 million in losses.

Reporter John Parnell describes RWE as “a walking paradox: It’s Europe’s largest carbon emitter and a leading global developer of renewable energy projects, following its recent €40-billion asset swap with E.ON. The deal left RWE with 9.0 gigawatts of operating renewables and a 17-gigawatt pipeline of projects, including in the U.S.”

But even so, “RWE stretches to the limits of what is possible,” CEO Rolf Martin Schmitz said in a media statement. “We will have to take significantly more power plant capacity off the grid in much less time than we originally expected. And we will bear the majority of the burden the German government demands for the coal phaseout.”

At the same time, “we were well aware that a consensus solution was needed in order to contribute to solve a social and political conflict, to achieve the climate protection goals and, last but not least, to regain planning security for our company.”

Reuters says news of the agreement drove RWE shares up 3% to €30.3, their highest since September 25, 2014.

Agora Energiewende Director Patrick Graichen told Greentech the phaseout negotiations would continue after last week’s announcement. “The planned phaseout timetable will most likely be up for discussion in the next legislative period,” he said. “What will probably remain are the structural funds for the affected regions which have been agreed.”

The organization’s head of European energy policy, Matthias Buck, said the current deal offers the first glimpse at what a just transition policy might look like in practice, rather than just “a buzzword, a political commitment that nobody will be left behind.”

Bloomberg notes that lignite and other grades of coal “are Germany’s only native energy commodities, and the country has enjoyed a two-century love affair with fossil fuel. Merkel’s plan is an attempt for a civilized breakup, something that’s been complicated by protests at mines and coal plants across the country.”

But “it’s not clear that Merkel’s plan will appease protesters who have disrupted operations [7] at sites including RWE AG’s Hambach [8] mine,” the U.S. news agency adds. “Sorry, a coal exit by 2038 isn’t good enough,” tweeted German FridaysforFuture activist Luisa Neubauer.

Even so, the German plan “offer a model for how countries such as China and India make ahead-of-time closures of recently-built plants and how they compensate workers,” Bloomberg says. “This plan brings together social and climate justice,” said mining union leader Michael Vissiliadis.

But despite the high-profile announcement, Neubauer and Kathrin Henneberger, a member of the Ende Gelände climate alliance in North Rhine-Westphalia, are still raising flags about a new coal plant under construction in Germany, the only one in Western Europe.

“It is almost unbearable: In no time in history has science been more certain about the dangers of the climate crisis and the consequences of the endless wrecking of our ecological environments. Yet, out of all countries, it is Germany, one of the richest economies in the world, that is planning to open a new coal power station,” they wrote [9] earlier this month for Climate Home News. Friends of the Earth Germany says the Datteln 4 station would emit 8.4 megatons of carbon dioxide per year, making it one of the country’s 10 most CO2-intensive coal plants.

“At the same time, legislators have turned away from an ambitious energy transition and are making it considerably harder for investors to set up new wind power plants,” Neubauer and Henneberger added. “The situation, as it is unfolding now, would spell the end for the famous German energy transition.”

Earlier this month, Climate Home reported that Germany had missed [10] a December 31 deadline to deliver an updated climate plan to the EU, Greentech speculated [11] on what it would take for the country’s widely-acclaimed energy transition to “get its mojo back”, and Clean Energy Wire looked [12] at 40 million homes in need of heating as one of the hurdles and opportunities in Germany’s effort to phase out fossil fuels.

“About 9.4% of Germany’s total CO2 emissions in 2018 went on keeping 83 million people’s homes warm and supplied with hot water,” the publication stated last week. “With half of all homes heated by natural gas and an aging population of oil-fired heating systems waiting to be replaced, the heating sector is attributed with ‘enormous potential’ to cut CO2 emissions.”

BBC has Clean Energy Wire and Eurostat data on German and EU lignite consumption and Germany’s lignite exports to the rest of the 28-country bloc. Germany plans to generate at least 65% of its electricity from renewable sources by 2030, while most EU countries have set 2050 carbon-neutral goals.