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Renewable energy

Germany in an era of Energiewende

Anders Nordeng  Senior Carbon Market Analyst, Thomson Reuters Point Carbon Commodities Research & Forecasts

Anders Nordeng  Senior Carbon Market Analyst, Thomson Reuters Point Carbon Commodities Research & Forecasts

The EU's biggest country and economic engine is a worldwide leader in carbon reduction. What will Germany's Sept. 24 election mean for energy policy?

Energy and climate policy are not foremost issues in the campaign for Germany’s chancellor, but the Sept. 24 election is in no way trivial for carbon and energy market observers. Germany is the EU’s most populous country and its economic workhorse; even so, it is an international model for reducing greenhouse gas emissions.  Whatever example it sets will be carefully scrutinized the world over.

One main question is how quickly coal power generation should be phased out of the German electricity mix. Another, with even more direct relevance to the European carbon market, is whether to support a Europe-wide minimum price on carbon. Whoever wins in the race to be chancellor or to serve in the Bundestag will shape German energy policy in the years to come.

A coal-powered present

Despite all its achievements in promoting renewable energy sources, Germany continues to rely heavily on coal as a major source of energy. The implementation of concrete policies to phase out coal is moving slowly, partially because the coal sector is still a crucial part of the German economy. According to the European Association for Coal and Lignite, the sector provided 41 percent of gross power production in 2016 and contributed 45,000 jobs in mining, power production, equipment supply and related fields. Germany has the largest coal capacity in Europe with 44 GW installed coal capacity, including 20 GW lignite plants and 24 GW hard coal plants. Sixty-seven coal power plants bigger than 50MW are currently operating in Germany, and are responsible for about a quarter of the country’s total emissions.

The German Climate Action Plan 2050, presented and approved by the German cabinet in November 2016, maps out how the country should become carbon-neutral by 2050, in line with the Paris Agreement obligations. The fact that the plan lacks a precise timeline for phasing out coal shows the political controversy of the topic. The climate plan does envisage energy sector emissions to be reduced by 61-62 percent by 2030 and explains that this target “…can only be achieved if coal-fired generation is reduced step by step”. Earlier this year, State Secretary at the Federal Ministry of Economic Affairs and Energy Rainer Baake said Germany’s climate action plan means half of Germany’s coal capacity must retire by 2030.

The climate plan also foresees that a commission will be set up by 2018 to draft recommendations for the phasing out of coal and the types of regional development that should be put in place as compensation. The precise mandate is not yet decided, as it seems that both the Christian Democratic Union of Germany (CDU) and Social Democratic Party of Germany (SPD) are reluctant to flag a clear position before the election, preferring to wait until after the election.

The sun sets over a high-voltage power line near Erfurt, Germany on March 26, 2012.
The sun sets over a high-voltage power line near Erfurt, Germany.

The era of Energiewende

The 2017-2021 parliamentary session will be a period of tough choices for whomever will be in charge of the Energiewende – or “Energy transition” – as Germany is set to miss its overarching national 2020 climate of cutting emissions by 40 percent compared to 1990 levels (a target that was always more ambitious than the general EU target of cutting 20 percent from 1990 levels by 2020). Data from the European Environment Agency (EEA) shows that by 2015, Germany had cut its emissions by 28 percent. While the cuts will no doubt increase between now and 2020, anything beyond 32 percent seems unlikely. Germany is on track to meet the sub-target for the share or renewable in the energy mix, but not the ones for improving energy efficiency.

A more detailed plan for phasing out coal is likely to high on the next government’s energy policy agenda. The logical place to start would be to specify the mandate and appoint members for the coal phase-out commission that should deliver a report by the end of 2018. Based on its recommendations it should be possible to present a draft timeline or roadmap. The question of coal phase-out will need to be discussed against the backdrop of the ongoing nuclear phase-out. Eight nuclear reactors which currently provide around 13 percent of the power mix are to be taken offline by 2022. The Government must also decide how the Energiewende should play out within the wider context of European energy and climate policy, which is currently undergoing a series of reforms.

The German government also needs to discuss a possibly fundamental reform of the financing of new renewable energy. Germany’s main instrument for this has been the so-called renewable energy surcharge, but this has come under scrutiny as demands are being voiced for a fairer distribution of costs.

Wind turbines spin north of the German island of Heligoland.
Wind turbines spin north of the German island of Heligoland.

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