Written by Philipp Geres (Sino-German Climate Partnership, GIZ)
1 February 2019
1. Background on the Commission on Growth, Structural Change and Employment
Germany is likely to miss its 2020 climate target. To close some of the gap to the 2020 target and to meet the energy sector’s 2030 target, phasing out Germany’s coal-fired capacity in power and heating had long been discussed. Against this backdrop, the German federal government established the commission in June 2018. Its mandate was to propose a pathway for the phasing-out of coal-fired power plants in Germany, as well as measures that support economic restructuring in affected regions and provide employment perspectives to those whose employment may be affected. Another important question was how to react to the impacts of coal phase out on energy supply and power prices.
The commission was composed of 31 members from various stakeholder groups, 28 of them with voting rights: presidency of the commission (4), industry associations (7), scienctists (5), environmental organisations (3), labour unions (3), representatives of lignite mining regions (5), a Bavarian politician (1), Members of Parliament (3). The members listened to experts and stakeholders and undertook field visits to lignite mining areas.
It should be noted that the commission only makes proposals that are yet to be cast into law by the federal government. The government is expected to widely follow the proposals, however. To account for future developments, the proposals and progress on them are to be reviewed by expert commissions in 2023, 2026 and 2029.
2. Status quo – energy sector and employment in the affected areas
The installed coal-fired capacity at the end of 2017 was at 42.6 GW (22.7 black coal, 19.9 GW lignite). Additionally, there are 4.3 GW in reserves (2.3 GW black coal, 2 GW lignite). The coal share in gross power production was at ca. 35% (black coal 12.8%, lignite 22.5%). 20,000 jobs directly connected with lignite mining and lignite energy industry. Accounting for providers of goods and services who probably will lose business if coal phase-out causes loss of purchasing power in the area, the commission estimates that 60,000 jobs are dependent on the lignite industry.
3. Coal phase-out pathway and process
In the first phase 2019-2022, a phase-out of 12.5 GW (7.5 GW black coal, 5 GW lignite) is proposed. Moreover, a switch from coal to gas in reserve plants is recommended. In the second phase from 2023-2030, coal capacity should be reduced “as steadily as possible” to no more than 17 GW in 2030 (9 GW lignite, 8 GW black coal). As an “interim step” 10 MtCO2e are to be cut (ideally through innovation project) in 2025. The commission proposes 2038 as end date for coal phase-out but leaves open the option of phasing out by 2035 if all stakeholders agree, which would have to be decided in 2032.
The commission recommends settling questions related to compensation for operators of lignite plants as well as for employees in “mutual agreements.” In cases where this is not possible, it says disputes should be settled “by regulative law” after a 30 June 2020 deadline. Compensation should depend on CO2 emissions, ownership structure, linkages with the mining sector and the respective number of affected employees. It proposes that compensationshould be paid from the federal budget, not through a surcharge on the power price. Compensation payments will be lowered with each year that a plant is kept on the grid for all plants younger than 30 years by the time of decommissioning. Decommissioning of the hard coal plants should happen either by gradually phasing out plants that become obsolete in the framework of Germany’s combined heat and power law or by an auction that awards so-called decommissioning premiums to operators that voluntarily take their plants off the grid. (This paragraph was taken and abridged from Clean Energy Wire)
4. Additional measures in the climate and energy policy
The commission expects wholesale power prices to rise in the next years due to higher fuel and CO2 prices. It believes coal exit will likely accelerate this, even though a parallel expansion of renewables might dampen the price increase. It suggests that “accompanying measures for limiting power prices” are necessary to keep energy-intensive industries competitive and to curb “additional burdens” on commercial and private power consumers in Germany, which already has the highest power prices in Europe. Therefore, it recommends a “compensation” mechanism, suggesting support with grid fees or a measure with similar effect of at least 2 billion euros per year. The exact volume should be determined during the 2023 review and paid out of the federal budget. It also recommends the “continuation and further development” of ETS price compensation for energy-intensive companies. (This paragraph was taken and abridged from Clean Energy Wire)
In order to compensate for the reduced coal capacity, the commission reaffirmed the importance of achieving a 65% renewable energy share in electricity supply by 2030, as proclaimed in the governing coalition’s treaty. This also increases the importance of improving system integration of renewables and increase flexibility through grid optimisation, incentives for R&D and commercialization of storage technologies, and demand-side management. The commission also calls for advances in integration of energy flows between sectors to decarbonise non-power sectors. In order to aid this process, the commission proposes reforming the tax and fee system to remove currently existing obstacles and disincentives. As gas plants will grow in importance as back-up, it proposes facilitating CHP coal-to-gas switch and flexibility, as well as permits for new gas plants.
With respect to the German coal exit’s effect on emissions trading in Europe, the commission recommends deleting allowances from Germany’s auctioning budget in proportion to the volumes of CO2 additionally saved by shutting down the plants. The introduction of a price on carbon emissions should be examined also for sectors not covered by the ETS, the commission says. “This will lead to a greater contribution to climate action by these sectors and provide incentives for using the flexible potential of power-to-x installations,” it states. The CO2 price should be designed “in a socially acceptable way.” (This paragraph was taken and abridged from Clean Energy Wire)
5. Just transition and structural change
Another important goal is to create new perspectives for the affected employees and safeguard as many qualified jobs in the energy sector as possible. Based on the individual circumstances of an employee, adequate measures could be retraining, financial compensation, or early retirement. The affected regions should benefit from measures that support their structural change and drive the development of new, clean industries. The commission proposes specific measures for the affected regions, which are not detailed here. A general idea for structural change is the transformation of old energy centres in new energy centres (revolving around renewable energy, storage technologies or power-to-X). This involves strong investment into digital and transport infrastructure and pilot projects in innovative digital applications. Regional higher education and research centres, especially in the MINT area, should be established or enhanced and cooperate closely with local businesses. The commission proposes that the federal government commits € 2 bn per year until 2040 to fund those measures. This commitment should be laid down in contracts and laws to ensure that it is independent from future political developments.
Commission on Growth, Structural Change and Employment (2019-01-26). Final report (German): Available online: https://www.handelsblatt.com/downloads/23912864/3/190126_abschlussbericht_kommission-wachstum-strukturwandel-und-beschaeftigung_beschluss.pdf?ticket=ST-1231658-Nmhfk3OhfctflYfcJsPp-ap6
Egenter, Sven; Wehrmann, Benjamin: Clean Energy Wire (2019-01-26). German commission proposes coal exit by 2038. Available online: https://www.klimareporter.de/deutschland/das-sind-die-mitglieder-der-kohlekommission
Kern, Verena; Meier, Friederike: Klimareporter (2018-06-07). Das sind die Mitglieder der Kohlekommission (German). Available online: https://www.klimareporter.de/deutschland/das-sind-die-mitglieder-der-kohlekommission