23. March 2022The Political Economy of Coal and the Influence of the Ukraine Invasion on Germany’s Energy Policy

In 2020, Germany implemented the ‘Act on the Phase-out of Coal’ that foresees an end to electricity generation from coal until 2038. Compared to other European countries and with regard to international climate targets, the phase-out is late – and comes with a high price-tag.

In order to understand how this decision came about, we studied the political economy of coal in the context of the German coal phase-out and the coal commission. We focused our analysis on actors, objectives and the overall political context of the commission.

The ‘Commission on Growth, Structural Change and Employment’, or coal commission, was established in 2018. Its mandate was to define a coal phase-out pathway as well as to design compensation measures within the boundaries set by the then German 2030 climate target (-55% compared to 1990 levels). 28 members of different stakeholder groups, like NGOs, science, trade unions and industry associations ensured a broad representation of interests. The final report of the commission entailed a phase-out of coal by 2038 (or potentially 2035 as the final coal exit year, if the closure of the plants scheduled after 2030 could be brought forward by three years), massive financial support for coal regions as well as (financial) safeguards against rising energy prices.

In the national news coverage, the compromise was lauded as a major breakthrough at the time, especially when considering the broad array of different stakeholders within the commission. Internationally, however, the final phase out date was perceived as very late – and certainly not in line with German obligations under the Paris Agreement. Furthermore, the compromise was deemed excessively expensive.

Key actors and their objectives in the coal phase-out negotiations

Based on interviews with the participants of the coal commission, we found that the following four objectives determined the outcome:

1. The environmental objective of meeting the German climate change objectives was accepted by all actors, but while especially the environmental groups considered the Paris Agreement and the 1.5°C target as a benchmark, most others considered the much less stringent German domestic target at the time as a condition for success. This target (a reduction of 55% in GHG emissions compared to 1990) dated back to 2010 and was not in line with the Paris Agreement.
2. The industrial competitiveness objective of maintaining secure and low-cost electricity supply for the wider industrial economy was again supported by a wide range of actors, most prominently by the various industry associations as well as the Federal Ministry for the Economy and Energy and the state level government of North Rhine-Westphalia, an industrial powerhouse also beyond the coal industry.
3. The regional economic objective of supporting structural adjustments in the coal regions was voiced by a broad alliance of actors. For trade unions, it meant to compensate coal workers and create opportunities for other sectors. For utilities, it implied delaying change and maximizing compensation payments. And for regional and local governments, it meant maximizing support for structural change.
4. Finally, a less overt political objective of containing the far-right party AfD, particularly in Eastern Germany, was shared by all surveyed actors, but prioritized strongly by Eastern German state governments as well as within the federal government, particularly the BMWi.

In combination, these four objectives and how they were (or were not) addressed in the coal commission explains the result. First, the environmental objective was contested in the public sphere but not in the commission, because it was already included in the commission’s mandate, however referring to outdated and unambitious old targets.

Second, the regional economic objective dominated and leveraged the AfD containment objective. Third, economic competitiveness played only a minor role as low-cost energy supply was not affected by sooner or later phase-out. This particular configuration of actors and objectives in the context of the coal commission can explain the late phase-out date. Achieving the other key result, the enormous structural support for coal regions, was aided by the fact that the commission was not limited by any budget constraints – the Ministry of Finance was not directly involved.

The Ukraine war completely changes the political economy of energy

So, what has changed in the meantime? Firstly, the environmental objective has been institutionally strengthened. After a decision of the Federal Constitutional Court, the German Climate Law was strengthened and the 2030 climate target significantly upgraded. Moreover, climate change featured prominently in the 2021 election campaign. The newly elected German government made climate change a key priority. Green ministers are in charge of most climate-relevant ministries.

Secondly, the issue of regional structural change has been resolved with the adoption of the law for structural support of coal regions implementing the recommendations of the coal commission. And finally, the objective of containing the success of the right-wing AfD has also receded. The political rise of the AfD has been stalled. While the party is still doing well in electoral polls and has become the leading party in some parts of Eastern Germany in terms of votes, their support is no longer growing. Moreover, the new government is much less exposed to competition to the AfD compared to the previous government led by the centre-right CDU party which struggled to find its own position vis-à-vis the even more right-wing challenger.

The Russian invasion in Ukraine also has massive implications for the political economy of energy. Our previous analysis highlighted the relevance of the industrial competitiveness objective. However, it played only a limited role as industrial competitiveness was not really affected by a sooner or later coal phase-out.

With Russia abusing energy trade as a political tool in this conflict, we are now in a fundamentally different situation. Industrial competitiveness is now taking center stage and the availability of supply, including the consideration of energy policy as a matter of national security, are now entering the political debate.

The war also brings to the fore the international and especially European dimension of the energy transformation. Our previous analysis showed that the European dimension hardly played a role when the coal phase-out was negotiated in Germany. Now it becomes clear that the current crisis can only be addressed in close coordination and cooperation with our European neighbours.

 

Renewable energy and energy efficiency are key for energy security

Our political economy analysis allows us to develop some recommendations on how to build discursive alliances so as to avoid the reversal of coal phase-out in particular.

First, it is important to highlight that the German dependency on Russian natural gas imports is first and foremost a heat issue and not an electricity issue. The vast majority of natural gas is consumed for building heat or industrial process heat. Coal cannot replace gas use in heating buildings and it has only very limited scope to substitute gas in industrial processes. Coal is also contributing to industrial heat in Germany, but this is mostly imported hard coal, some of which was also imported from Russia  –  domestic lignite has not been widely used for that purpose so far.

So how could Germany address the heat issue in the short to medium term? For buildings, electrification through heat pumps, massive efforts to increase energy efficiency and reducing demand through energy sufficiency campaigns are key. Similarly, electrifying industrial heat is also an option for many applications. For other applications, hydrogen will be the main energy source. As German State Secretary Patrick Graichen put it: “[the war] has broken the narrative of natural gas as a bridging technology, the bridge has collapsed.”  If there is no bridge, we need to close the chasm and rapidly accelerate the development of hydrogen infrastructure.

Of course, all of this will result in increased electricity demand. However, the quickest and most cost-effective way to meet this demand is to massively ramp up renewable energy supply and energy efficiency efforts to reduce demand. A literal war-time effort is required to achieve this. Relying on coal for this is like band-aid on a broken limb. It is in no way a solution, neither short nor long term.

 

The chapter is part of an open access book ‘The Political Economy of Coal: Obstacles to Clean Energy Transitions‘, edited by Michael Jakob and Jan C. Steckel (2022), published by Routledge. The electronic version of this book is available free of charge here.

 

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Authors

Lukas Hermwille
Senior Researcher | Wuppertal Institut

Dagmar Kiyar
Senior Researcher | Wuppertal Institut

The CINTRAN project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 884539. The sole responsibility for the content of this website lies with the authors and does not necessarily reflect the opinion of CINEA or other EU agencies or bodies.