Germany, in many ways, looks like leading Europe out of the Covid lockdown. Whether it can also lead Europe to an energy transformation remains unclear.
The German government had tried for years before the shutdown to effect what it calls the Energiewende, a systematic reinvention of its power and fuel supply. The devil always lurked in the development. Now politics have roiled the idea.
One of our undergraduate writers examines the Energiewende's past, contentious present, and still-promising future, discerning a path forward for sustained investment in sustainability.
Before it shut down and reopened its economy, Germany stood out for policies the government called the Energiewende, which sought to convert Europe’s largest economy to run only on fossil-free sources. Covid-19 froze its implementation, as it has frozen much of the world. Now Germany has reopened schools and businesses. While some argue that COVID-related pressures will curb enthusiasm for the conversation on climate change, others believe that the need for economic stimulus could create fiscal space for policymakers to rebuild a cleaner, more sustainable world.
This debate is beng held in virtual board rooms and city halls across Germany, a nation historically at the forefront of the clean energy transition. The cacophony of calls to loosen emission regulations (to boost economic activity) and demands to pass “green” stimulus packages that combine economic recovery with long-term environmental goals is growing louder.
Some conservatives have called for the suspension of the aviation tax planned in Germany's Climate Action Programme for at least one year. A rightish party, the FDP, queried the timing for a national price on carbon emissions in heating and transport, a core element of the country's future climate policy. The carbon taxes were slated to kick-in in 2021 (€25/ton of CO2) and ramp up in 2025 (€55/ton). On the other hand, some climate activists and energy transition experts see the economic downturn as a chance to commit to clean power solutions that can grow for years after the pandemic has passed.
All relief should “contribute to building a climate-neutral economy,” tweeted environment minister Svenja Schulz. Similarly, Patrick Graichen, director of energy policy think tank Agora Energiewende, wrote, "In order to leave this crisis in a good way we have to focus on the things that have fallen behind due to the coronavirus. This is especially true for climate change.”
Reducing emissions has been one of the Energiewende’s longstanding objectives. This target is currently tied to the international Kyoto Protocol (1997) and the National Climate Targets (set in 2007 and reinforced in 2016 with the Climate Action Plan 2050).
Germany has achieved emissions reductions based on these commitments, but is not on track to hit its 2020 targets. For the Protocol’s first commitment period between 2008 and 2012, Germany exceeded its greenhouse gas reduction targets, promising a 21% reduction from 1990 levels and achieving a 24% reduction. For the second commitment period (ending in 2020), Germany set itself an ambitious target of a 40% emission reduction relative to 1990 levels, but will likely land closer to a 33% or 34% reduction (Note: according to new modelling by Agora Energiewende, COVID-19 measures and a mild 2019-20 winter could see Germany reduce greenhouse gas emissions by 40-45% this year compared to 1990 levels. However, this achievement would largely be the result of one-time, exogenous shocks and the “progress” would not transfer over to future years). According to a McKinsey report, if the pace of emissions reductions from the past decade continues, Germany will not hit its 2020 targets again until 2028, and will not hit those set for 2030 until 2046.
Claudia Kemfert, an expert in energy and environmental protection at the German Institute for Economic Research in Berlin, suggests that continued reliance on coal for power generation and the burgeoning transportation sector are to blame for missing the benchmarks.
“There is still a very high share of coal for electricity production. And in the transportation sector emissions are rising. Road transport is increasing and the cars are too big, and have high levels of emissions. We should have started with the coal phase-out earlier, and the transportation needs to be more sustainable and more electric than it has been in the past,” said Kemfert.
However, progress in renewables has not always come easily. Detractors point to the supply’s intermittency issues and high electricity prices. McKinsey wrote that the nation’s heavy reliance on intermittent solar and wind (which produces more than half of Germany’s renewable energy) was leading to an increasingly insecure energy supply. For three days last June, the electricity grid nearly blacked-out. Supply shortages like this caused the costs of short-term "balancing energy" to skyrocket in 2019 ― costs which have largely fallen on German companies and consumers.
German electricity prices are 45% above the European average, McKinsey reports, with green taxes accounting for 54% of household electricity prices and average electricity prices for companies increasing 60% over the past five years. Prices are now more than double those in the United States. For Germany’s energy-intensive industries, increasing energy prices could spell disaster, making domestic businesses significantly less competitive than firms abroad and imposing a significant cost on the overall economy. In this context, the impact of the coronavirus could have two separate effects on the industry.
Firstly, the pandemic could slow renewable energy adoption. Supply chain disruptions, particularly in solar panels and wind turbines manufactured abroad, have already impacted renewables companies in Germany and new projects have had to be delayed due to the quarantine. Furthermore, new investment could be stalled as debt-backed deals could be difficult to close during these economically trying times.
Yet renewables could also see heightened support following the coronavirus crisis as a means by which to create jobs and bolster economic growth. Investors fortunate enough to have access to capital now could view wind and solar farms as safe havens producing steady returns during today’s extreme market volatility. On the policy side, the European Council approved a statement last month which highlighted the role of the “green transition” as part of a “comprehensive recovery plan” to the crisis.
As previously discussed, the Energiewende provides a platform for German lawmakers to continue to work towards climate solutions, while providing dearly needed economic stimulus during what some believe could turn into the worst economic slowdown since the Great Depression.
Even before COVID-19, the potential economic benefits of the Energiewende were lauded by its proponents. Despite hefty price tags (up to €1 trillion by the end of the 2030s, according to some estimates), the initiative would help the country avoid the direct costs of floods, droughts, forest fires and major storms, and indirect ones from increased energy prices and the costs of protection measures like dikes and water protection walls. In fact, BCG managing director Philipp Gerbert and leader of a financing study on the Energiewende said that “even without the external costs of climate change… [the net effect from the Energiewende is] slightly positive on the economy.”