According to the final report of Germany’s coal departure panel, the country has a clear route forward to phase out the fossil fuel source while also making progress on its sluggish emissions reductions. Germany’s coal-fired power generation should be phased out by 2038, with the option to phase it out earlier if necessary, according to a consensus reached after more than half a year of discussions among representatives from industry, environmental non-governmental organizations, civil society, and policymakers.
Germany should initially turn off 12.5 gigatonnes of capacity by 2022 as a first step toward decarbonization. Specifically, the document provides extensive explanations of how the government might deal with the consequences of a coal phase-out on the economic future of mining districts, the price of electricity, industrial competitiveness, supply security, and the transition to a clean energy system. In total, the media predicted that the afflicted districts will get around 40 billion euros in assistance over the following 20 years.
Germany’s coal exit committee has issued its final report on how the country should phase out coal-fired power generation after more than six months of rigorous and multilateral talks with a diverse spectrum of experts and stakeholders.
Only a few days before the official deadline of 1 February, and after approximately 21 hours of discussions that lasted into the wee hours of the morning of 26 January, the report outlines the agreement reached between representatives of the country’s industrial sector, environmental NGOs, citizen initiatives, and policymakers in a 336-page document that also includes detailed lists of projects for structural change in the affected regions. 27 of the official members voted in favor of the agreement, out of a total of 28 members. Only the representative of the communities threatened by lignite mine expansions in Lusatia voted against the agreement, claiming that there were no guarantees that the villages would be allowed to remain in their current locations. Greenpeace expressed dissatisfaction with the lateness of the withdrawal date, stating that they were dissatisfied with the decision.
As part of the “Commission on Growth, Structural Change, and Employment,” which was established in June 2018, delegations have been assessing the impact of Germany’s coal exit on emissions reduction, electricity prices and supply security, economic development in coal regions, and the future course of Germany’s energy transition, known as the Energiewende. The study includes a detailed review of all of these factors, as well as an analysis of the impact of a German coal departure on electricity generation and carbon trading throughout Europe.
The panel’s recommendations are merely intended to serve as guidance to the German government, and the actual execution of policies may differ from those recommended by the commission. The government, on the other hand, is largely anticipated to adhere to the recommendations. According to the study, “the commission’s members represent a diverse cross-section of key social, political, and economic players.” This establishes a solid foundation for a broad social agreement on which everyone engaged may rely in the coming years,” says the author.
Coal plant decommissioning and emissions reduction: The study admits in its opening remarks that eliminating coal-fired electricity generation throughout the world is essential for effective climate action. It goes on to say that Germany, “a highly industrialized and export-oriented nation with a relatively substantial proportion of coal in power generation,” will find it “especially difficult” to phase out coal-fired power generation in the near future.
Initially, the European Commission assumed that Germany’s energy sector carbon emissions would decline from approximately 313 million tonnes in 2017 to approximately 280 million tonnes annually by 2020 as a result of existing policies such as the European Emissions Trading System (ETS), continued renewables expansion, energy efficiency measures, and so forth.
As a result, the report concludes that this would not be adequate to meet the country’s 2030 objective of lowering emissions in the industry by 175 to 183 million tonnes per year. 2017 saw a total of 907 tonnes of carbon dioxide emissions from Germany.
These assumptions serve as the basis for developing the decommissioning roadmap. From now until 2022, the commission estimates that both lignite and hard coal capacity will be reduced to 15 GW and 15 GW, respectively. As a result, lignite capacity would be reduced by approximately 5 GW and hard coal capacity would be reduced by 7.7 GW when compared to 2017.
Overall, this would result in a decrease in coal capacity of at least 12.5 GW by 2022, which would include units that would have gone into reserve capacity anyway. According to the German magazine Der Spiegel, this is an extra drop in capacity compared to the previously existing plans to close 3 GW of lignite and 4 GW of hard coal capacity by the year 2020. A conversion from coal to gas for Germany’s “grid reserve” capacity, which is now at 2.3 gigatonnes (GW), is also recommended by the European Commission.
From 2023 to 2030, according to the research, coal-fired power capacity should be reduced to a maximum of 9 GW in lignite and 8 GW in hard coal for the period from 2023 to 2030. As a result, lignite capacity would be reduced by 10.9 GW and hard coal capacity would be reduced by 14.7 GW when compared to 2017. According to the commission, reductions in greenhouse gas emissions should occur “as consistently as feasible” during the next several years. In 2025, a “major intermediate measure” should be taken that reduces CO2 emissions by at least 10 million tonnes, ideally through the implementation of “an innovative project.”
According to the research, the energy sector will “significantly” contribute to meeting Germany’s 2020 objective of lowering CO2 emissions by 40 percent compared to 1990 levels, as well as “reliably” ensuring that the industry meets its 2030 target of increasing energy efficiency.
It specifies that in 2023, 2026, and 2029, a review of the coal exit plan and the actions implemented up to that point would take place, respectively. “This is required in order to fully assess the consequences of the nuclear phase-out in 2022, as well as the decommissioning [of coal capacity] that will be undertaken by that time.”
Germany’s coal era is coming to an end
According to the commission, coal-fired electricity generating should be phased out by 2038. The date for this might be pushed ahead to 2035 if the conditions are right. The panel recommends that this alternative be evaluated by 2032. “The study will also look at whether the assumptions about the end of coal-fired power generation are feasible in the long run.”
In addition, the panel recommends a method for reviewing the final date. “The end date for coal-fired power production should be thoroughly reviewed by independent experts in the years 2026 and 2029 with respect to achieving climate targets, the development of power prices, supply security, employment figures, and the economic situation” in the coal regions, and should be adjusted if necessary, according to the World Bank.
Several commission members expressed their opposition to the 2038 deadline in a dissenting opinion [p. 119 of the final report]. “Neither the proposed final exit date of 2038 nor the unclear route until 2030 are sufficient to ensure that the energy sector makes an acceptable contribution to climate protection,” the authors concluded.
Hambach Forest is a forest in Germany
A decision to retain the threatened forest, which is scheduled to be cleared to make way for an expansion of a lignite mine, has been deemed “desirable” by the Commission on the Environment. While the commission initially stated that it would stay out of the debate over the preservation of the ancient woodlands, which had become a major demonstration ground for climate activists and had only been saved from destruction by a court order, its inclusion in the final report is seen as an acknowledgement of the forest’s symbolic significance.
Payments in lieu of damages
The panel proposes that “mutual agreements” be used to resolve problems pertaining to remuneration for lignite plant operators as well as for lignite plant personnel. In the event that this is not feasible, it states that conflicts should be resolved “by regulatory legislation” after a deadline of 30 June 2020 has passed. As stated above, this is intended to give “planning security in order to assure a reliable power supply.”
Compensation should be determined by factors such as CO2 emissions, ownership structure, ties to the mining industry, and the number of employees who have been harmed. The paper emphasizes that all money will have to be given through the state’s budget, rather than through a fee on the cost of electricity purchased.
A second recommendation of the commission is to prohibit the building of new coal-fired power facilities. According to the report, a mutual agreement on not launching operations is preferable for facilities that have already been constructed but have not yet been put into service. Compensation payments for any plants less than 30 years old at the time of decommissioning will be reduced by one year for each year that a plant is maintained operational on the grid.
Hard coal power plants should be decommissioned either through a gradual phase-out of plants that become obsolete in accordance with Germany’s combined heat and power law or through an auction that awards so-called decommissioning premiums to operators who voluntarily take their plants off the grid, according to the German government.
Trading in emitted gases
Regarding the impact of Germany’s coal departure on emissions trading in Europe, the European Commission states that “sufficient efficacy of national decommissioning of lignite and hard coal facilities within the ETS framework must also be assured.”
This means that, following the decommissioning of coal-fired power stations, emissions permits “of a certain volume” might be removed from the national budget and transferred to the state budget. “The panel proposes that this option be used in proportion to the increased volumes of CO2 avoided” as a result of shutting down the facilities, the commission says. Purchase and deletion of allowances would already be feasible during the present trading period, which would last until the end of 2020, according to the study.
The price of CO2
According to the European Commission, the implementation of a carbon price should be considered for sectors that are not currently covered by the ETS. This will result in a stronger contribution to climate action by these industries, as well as incentives for the use of power-to-x facilities’ flexible capacity, the report adds. The CO2 pricing should be set “in a way that is socially acceptable,” according to the authors.
Multiple commission members express their disapproval of the report’s CO2 floor price for the electricity sector [page 118], stating that a CO2 floor price for the electricity sector – developed in collaboration with neighboring countries – should be investigated further as a tool to implement the coal exit.
Plants that generate heat
Aside from electricity generation, “the decommissioning of coal plants in general” refers to “plants that produce huge amounts of heat and have the potential to make a significant contribution to emissions reduction in other sectors,” according to the paper.
While the commission agrees that a consistent and secure heating supply must not be jeopardized, it believes that Germany’s combined heat and power law should be further enhanced in order to reduce emissions in the sector.
The cost of electricity
According to the commission, wholesale electricity costs are expected to grow in the coming years as a result of rising fuel and CO2 emissions certificate prices. This scenario will most certainly be hastened by Germany’s coal phase-out, even though a simultaneous expansion of renewable energy sources may help to mitigate the price increase, according to the report.
‘Accompanying measures for limiting power prices’ are required, according to the report, in order to keep energy-intensive industries competitive and to reduce “additional burdens” on commercial and private power consumers in Germany, which already has the highest electricity prices in Europe, the report says.
According to the report, electricity customers should be provided with a “compensation” mechanism, which may include grid fees or another measure with a similar impact that would cost “at least 2 billion euros per year.” When the evaluation is completed in 2023, the precise amount should be established and paid for out of the government budget. Also recommended is “the continuance and further development” of the ETS price compensation for energy-intensive firms, which is already in place.
Brown coal (lignite) and hard coal, taken combined, are the most important fossil energy sources in Germany’s energy mix. In 2018, coal power accounted for around 35% of Germany’s total gross electricity output, which is almost the same as the share of renewable energy sources. Just to be clear, the country possesses one of the most dependable electrical power networks in the world.
It is necessary, according to the commission, to adapt the government’s security monitoring systems to the imminent changes in Germany’s energy and heating supply landscape in order to maintain “a safe supply of electricity and heating at the highest level.” It proposes that the energy system be subjected to constant “stress testing,” and that the government’s monitoring program include an assessment of the economic viability of additional production, particularly gas plants, and storage capacity in order to detect “lacking investment incentives.”
It is recommended that “supply security be guaranteed in general within the domestic market,” according to the study. If there is not enough new electricity-generating capacity under development by 2023, the commission advises “a systematic investment structure” that is capable of providing adequate incentives for the building of further plants to make up the shortfall. Also recommended is the relaxation of regulations on the building of new gas facilities, which may eventually replace coal units at the same site.
If supply issues become evident, the commission recommends to employ current capacity reserve mechanisms “extensively” in order to maintain and expand the reserve. However, the overall capacity reserve should be kept to a minimum.
The future of coal-producing areas is bright
Although hard coal mining in Germany was phased out in December 2018, the lignite mining and power generating sector continues to directly employ around 20,000 people in the country. The commission believes that about 60,000 jobs are directly or indirectly dependent on the lignite economy, taking into consideration the effects on suppliers, other connected companies, and the loss of buying power.
Economic prospects for coal mining regions and coal workers, as implied by the commission’s official name “Commission on Growth, Structural Change, and Employment,” take center stage throughout this year’s annual report, with nearly 40 pages devoted solely to measures aimed at mitigating the disruptive effects of a coal exit on regional economies, as well as on industrial value chains throughout the country.
The commission did not provide a specific dollar amount for the proposed assistance measures. However, according to reports in the media, impacted areas should get around 40 billion euros in assistance over the next 20 years, with the sum to be established in a separate federal law that would also be obligatory on future administrations.
According to the committee, Germany’s coal mining areas should “continue to be energy regions in the foreseeable future.” In other words, the development of novel technologies, such as electricity storage, renewable energy sources, and gasification, should be encouraged in the region.
In the study, for example, it recommends that coal-fired power plant facilities in the eastern German mining area of Lusatia be turned into “industrial parks of a new generation with an emphasis on renewables and their conversion to energy carriers that are available over the long run.”
According to the study, “not just coal-producing areas should have possibilities, but Germany as an industrial location as a whole should have prospects by balancing climate action with decent work and economic growth.”