Coal transition in Germany

Learning from past transitions to build phase-out pathways


Historically, Germany has seen a large reduction of coal production and consumption, with significant socio-economic implications and corresponding policy action. Looking forward, this reports looks at pathways of phasing out coal and corresponding policy instruments to achieve the phase-out and accompany it.

Domestic hard coal production has been uncompetitive compared to imported coal since 1964, but coal subsidies kept levels of production close to consumption until 1990. Since 1990 Germany started to reduce subsidies, which led to a gradual hard coal production phase-out to be completed in 2018. Hard coal consumption has also gradually declined since 1960, first being replaced by consumption of oil and gas imports, and later by an increase in renewable energy and further gas utilization. Hard coal is mainly used in electricity generation and to a smaller degree for industrial production (mainly steel) and the reduction in consumption has had less impact on employment than the reduction in production.

The history of lignite production differs in the east and west of Germany. While the development of western lignite production has been relatively flat over the last decades, in eastern Germany it nearly doubled between the 1950s and reunification (in 1990). Due to the sector’s low productivity in the east compared to the west, production sharply declined by more than half following reunification, with an even sharper decline in employment. The consumption of lignite mirrors that of production as its transport over longer distances is uneconomic due to the low energy density.

While posing a big challenge for the mining regions, Germany implemented a variety of successful policies to alleviate social impacts of the hard coal phase-out through e.g. early retirement schemes, retraining programs and support for economic development. Due to the abruptness and scale of the reduction in lignite production and the coincidence with an overall economic downturn in former Eastern Germany, the affected (mostly rural), regions in Eastern Germany still suffer from the structural break and initiatives to develop sufficient alternative industries have not yet succeeded.

More recently, reductions in coal consumption in Germany have stalled and coal-related emissions have even temporarily increased. However, to comply with the 2°C target, Germany would need to phase out both hard coal and lignite consumption in the energy sector well before 2050, with various studies suggesting a shut-down of large shares of the generation capacities in the 2020s and a complete phase-out achieved earliest by 2025 and at the latest by 2040. Besides for reasons of climate policy, structural developments in the electricity sector, such as the shift to renewable energy indicate that coal will not be economically viable in the future.

The uncertainty of a successful deep decarbonization, shifting from the currently insufficient level of ambition (represented by existing nationally determined contributions (NDC) to global emission reductions) an NDC to a 2° world (i.e. limiting global warming to a maximum of 2°C compared to the baseline), seem to largely depend on the availability and commercial deployment of technologies which require a supportive policy environment to succeed. Whereas competitive technologies exist in the electricity sector with renewable energy sources, the picture is more challenging in the industry sector, e.g. in steel production. Here competing technological innovations as well as public acceptance will decide whether coal remains viable with CCS or will be substituted by other energy carriers and reactants. NDC and 2° scenarios differ primarily in two ways: earlier reductions and more ambitious emission reductions in transport and industry are needed for achieving Germany’s contribution to the 2° world.

Several studies suggest that Germany is able to phase out coal from an economical and technical perspective. Structural support and other policy instruments are needed to help affected regions on their path towards a just transition. Several concrete policy measures exist, which can lead to a successful phase-out and corresponding emission reductions. The basis for a coal-phase-out both in the NDC and 2°C scenarios is a strong carbon price. Several additional policy instruments are discussed which can lead to a phasing out of the ageing coal fleet, and a reduction of the full-load hours of newer plants. Accompanying structural policies can learn from the existing experience of previous phase-outs. Structural support should here be directed not towards coal companies but towards the most affected regions to create new opportunities for sustainable long-term employment and economic development.