What do you think of Germany’s Coal Exit Law?
It’s the result of a democratic process and is therefore politically legitimate. But it’s not good policy. European countries are ill-advised to take additional climate-protection action for sectors of the economy that are already covered by the EU Emissions Trading Scheme. This sort of double regulation creates unnecessary costs, unnecessary burdens, and unnecessary conflicts. Moreover, the debate that led up to Germany’s phaseout legislation largely ignored some important issues, particularly supply security. Germany’s plans to exit both nuclear and coal will pose significant challenges in the years ahead.
But Germany isn’t fully phasing out coal until 2038. Doesn’t that give it enough time to find a solution?
In theory, yes. Going forward, renewables will indeed provide an increasing share of Germany’s electricity. But they’re not good at meeting peak load, which typically occurs on winter evenings when the sun isn’t shining and the wind doesn’t blow reliably. Electricity imports can close some of this gap. But the supply of imports is limited because neighboring countries typically need to meet their peak load. This means that nearly all of the gap will need to be closed by power plants that burn either natural gas or hydrogen. So technically it’s not a problem. The problem is that there currently aren’t enough incentives to build such power plants.
Why is that?
The market design in Germany is based largely on payment for energy actually delivered. However, the growth in renewables leaves other types of power plants with less and less revenue potential. So although these power plants are needed to meet peak load, they operate too few hours a year to be profitable. This increasingly acute dilemma can only be resolved by a different market design. Instead of being paid only for energy actually delivered, plants that are reliable sources of backup power should also be paid for their availability to provide this service. A good comparison is with the fire department, which isn’t paid for how many fires it puts out but for its uninterrupted availability to fight fires. This type of market design is feasible for power. However, it would need to be coordinated with the overall European electricity market, which would be a complex process.
Could coal be made less carbon-intensive so that it could continue to help ensure Germany and Europe’s electricity supply?
Obviously, renewables should provide an increasing share of Europe’s energy. But there are also technologies – like carbon capture and storage or use (CCS/CCU) – that would make it possible to continue using coal without jeopardizing climate targets. These technologies of course still need to be tested and perfected. One good place to do this would be in regions where a lot of coal is already being used for energy-intensive industrial processes. This would ensure that CCS/CCU infrastructure is fully utilized. In my opinion, North Rhine-Westphalia – which has both heavy industry and deep engineering expertise – could play pioneering role in this technology.
Does investing in technologically complex processes like CCS/CCU really make sense?
It’s true that CCS/CCU is complex. But so is green hydrogen: you need to use green electricity to run electrolysis equipment that transforms water into hydrogen, then store and transport the hydrogen, and ultimately use it in a fuel cell or in other complex industrial processes or burn it to convert it back into electricity. The decarbonization of an industrial system – whether through renewables, CCS/CCU, or green hydrogen – is inevitably complex and, initially, expensive. But the approach shouldn’t be either/or but rather both/and. CCS/CCU also needs to be viewed internationally: it’s unlikely that the massive, cheaply recoverable coal reserves in China, India, and other emerging countries will remain in the ground because of the countries’ climate concerns. Ultimately, CCS/CCU will probably be part of the global solution to reduce carbon emissions. That’s why I think that Germany should not only expand its renewables capacity but also embrace technologies that make coal-fired power generation more sustainable.