Germany’s coal phaseout is again facing a lot of criticism. Many people think it’s too expensive and too late. What’s your position?
The most astonishing thing is that nobody sees how unfairly the phaseout treats hard-coal-fired power plants. It’s a particularly bad deal for the nearly ten newer hard-coal plants in Germany, which are far from being amortized or fully paid for. Germany’s lignite plants, which are much more carbon-intensive, will remain online longer and receive more money than hard coal plants.
Hard-coal-fired power plants already operate much less frequently. Regardless of Germany’s phaseout, does hard coal have a future as an energy source?
Of course. It’s important to remember that renewables require backup. If weather conditions prevent renewables from generating electricity, a reliable energy source needs to step in. The situation could become critical. No one knows how reliable Germany’s grid will be in the 2030s. That's why it would’ve been better for Germany to allow market forces to decide hard coal’s fate. Then, if necessary, Germany could’ve fallen back on it in the future. Instead, a number of new hard-coal-fired power plants are being shut down. The idea is that they’ll be replaced by gas-fired plants. But it’s unclear whether anyone is prepared to finance them. Because hydrogen is on the horizon as the new ideal. Gas-fired plants built today could well be shut down in the not-too-distant future, just as coal plants are now. I assume that by the 2040s Germany won’t have any more fossil-fuel power plants.
Some studies indicate that rising carbon prices will render lignite uneconomic by 2028.
Yes, some studies say that. And it’s true that rising carbon prices threaten both hard coal and less expensive lignite. But unlike a legislated phaseout, this is a market-based process. My trade association doesn’t oppose market-based outcomes. Ultimately, it’s about getting the total amount of carbon emissions under control. And that’s precisely the purpose of the EU Emissions Trading Scheme. By reducing, year by year, the number of emission allowances in circulation, European policymakers can influence carbon levels. This mechanism works. The Prognos Institute recently released a study that shows that Germany’s energy industry will achieve 97 percent of the climate target for 2030 set for it by the federal government. Germany’s transport sector, which is excluded from emissions trading, will only achieve 56% of its 2030 target.
If that’s true, why do you think Germany is legislating a coal phaseout?
It’s largely symbolic and connected to Fridays for Future and similar movements. Germany’s governing parties were worried about losing young voters to the Green Party. So they thought they had to look like they were taking action. And young voters generally don’t understand market-based approaches. They want the government to issue orders and for industry to obey.
Yet Germany’s coal phaseout still isn’t popular with young voters.
No, and that’s to some degree understandable. Hard coal has been pushed off the cliff. But lignite plants in eastern Germany will operate almost as long as they would have without an expensive phaseout. As I said, lignite emits significantly more carbon than hard coal. And the power plants that will operate until 2038 are, for the most part, much older. So even someone like me who works in the coal industry can understand why young people are dismayed.
What do you think Germany policymakers should do to accelerate the energy transition?
Promote renewables – but by using market-based mechanisms. Tenders for the right to build renewables facilities are one good approach. That way, the level of government support for renewables is determined on a competitive basis. Tenders ensure that renewables expansion is as efficient and inexpensive as possible. It took Germany much too long to finally start using them. Long-term power purchase agreements (PPAs) with renewables developers, which are popular in the United States and Scandinavia, are another sensible approach. They give developers financial security and make it much easier for them to build new renewables facilities. Germany has now finally started to use PPAs to develop new projects. Basically, Germany needs more renewable energy. But Germany is a market economy and needs to think in these terms with regard to renewables as well. Otherwise, Germany won’t produce good ideas or products that it can export worldwide.