The phase-out of coal electrification is a precondition for the success of the Energiewende (energy transformation) in Germany. In particular, the continuous use of lignite, by far the most CO2-intensive energy source, is incompatible with the energy program of the German government: it contradicts the ambitious greenhouse gas reduction targets, and the long-term focus on renewable energy production (> 80% by 2050). The objective of this study is to discuss options for a structured phase-out of lignite; thus, the study also provides input for ongoing policy discussionby the federal government, the “Climate Action Program 2020” and the “Climate Plan 2050”.
From a public economic perspective, lignite does not contribute to sustainable development. In addition to greenhouse gases, burning lignite also produces large amounts of nitrogen oxides, sulphur oxides, mercury, and particulate matter. It contributes to irregularities in groundwater and water pollution (e.g. through iron oxides), causes the displacement of towns and villages, and the loss of home for thousands of people. The negative externalities are estimated at about € 80-100/MWh, which is about two to three times higher than the value of electricity produced.
Recent studies by DIW Berlin as well as other institutions indicate that lignite will not contribute significantly to the electricity system beyond the 2030s. Even with the phasing out of nuclear power in 2022, security of supply is assured in the German electricity sector, including South Germany, provided that the regulator (Bundesnetzagentur, BNetzA) and the transmission system operators (TSOs) maintain their cautious policy. Lignite in Eastern Germany is located in regions distant to demand, and is thus inferior to other options to secure supply. The construction of new lignite power plants or the substantial retrofit of existing plants is uneconomic, given high investment costs and modest electricity prices in the years to come.
A lignite phase-out is economically efficient, environmentally necessary, and feasible from the energy system perspective. Thus, it requires a structured approach at different levels of public policy. The conventional neoclassical approach of one (and only one) “first best” policy instrument, such as the European trading system (ETS), is not able to accommodate the multiple policy objectives of the Energiewende, such as internalization of external costs, technology-specific support, avoiding regulatory capture by lobbying and interest groups, etc. The German government supports a “polycentric” approach, with instruments being proposed at different levels. With respect to lignite, we suggest to act onthe regional level of the lignite mining areas (Rhineland, Middle Germany, Lusatia) and to introducenational instruments.
All Federal Länder involved have committed themselves to phasing out lignite in their energy and climate policy statements, considering lignite only as a “bridge” fuel. The government of North Rhine Westfalia was the first to constrain the use of an existing pit (Garzweiler II); by concentrating on the other pit (Hambach) several villages inGarzweiler could be saved, Garzweiler II could end just before it reaches the federal highway A61. In Eastern Germany, too, there is no need to open up new lignite mines, as currently being discussed in Middle Germany (Profen/Lützen) and Lusatia (Welzow Süd TF II, Nochten II) nor for the extension of an existing mine (Vereinigtes Schleenhain). The verdict of the German Federal Supreme Court of December 17, 2013 excludes future infringements into the human rights of freedom to select a profession and ownership (Articles 12 and 14, respectively, of the German Constitution) due to welfare considerations: while previously lignite mining was considered to justify these human rights violations, this is no longer the case in times of the Energiewende, as lignite is no longer a critical energy source. Neither can the lignite industry rely on arguments of job creation; by now, employment in renewables is a multiple of the remaining employment in lignite mining and electrification.
Given the low prices of greenhouse gas emission certificates in the ETS, a market driven switch from lignite to less carbon intensive fuels, e.g. natural gas, is not expected in the decade to come; this switch would require CO2-prices of 40-60 €/t and above. In addition to a structural reform of the ETS, therefore, a lignite phase-out in Germany requires an approprimate mix of instruments on national level, the most important being discussed in this study; the introduction of a carbon floor price is unlikely to provoke a fuel switch, since this price would be below the critical switch price. Other instruments are the establishment of a minimum degree of efficiency or a package of flexibility requirements; these would need to be tailored fuel-specific, otherwise they would affect combined cycle plants and open gas turbines as well. A law on the phase-out of coal is another option: it could be implemented by allocation of remaining amounts of electricity on coal plants, the least efficient plants could be phased out earlier. The current discussionabout capacity instruments is also a good occasion to address climate objectives: all proposals of comprehensive capacity instruments currently on the table are expensive and contradict climate objectives, in particular the “decentral trading of obligations”. In addition, the introduction of any capacity mechanism could be used to negotiate with the operators an earlier closure –or shifting into cold reserve–of coal plants. Last but not least, the German scenario framework 2015 and the network development plan need to obey to the objectives of the Energiewende as well; clearly the construction of high-voltage direct current (HVDC) transmission lines to connect lignite basins to Southern Germany should be avoided, such as the planned corridors A South(Osterrath-Philippsburg) and D (Lauchstädt-Meitingen).
The study also discusses one instrument more explicitely that may be particularly suited to accompany the phase-out of lignite, and which has been implemented elsewhere already: CO2emission performance standards (EPS). In fact, the UK, Canada, and California have implemented EPS. The USA are about to implement a nation-wide regulation. For new builds and essential retrofits a specific EPS of 450 g CO2/kWhelseems appropriate; this would prevent new coal power plants (without CCTS) from being built, but allow the construction of combined cycle or open gas turbines. Existing plants, which surpass the age of e.g. 30 years, should be required to respect an annual emission limit of approx. 3,000 t/MWel. This level corresponds to approx. 3,000 full load hours for lignite plants and 4,000 full load hours for steam coal plants. An EPS thus introduced could lead to a reduction of around 24% (65 mn.t) of CO2by 2020, and 66% (176 mn.t) by 2040, respectively (base year: 2012).