How Germany plans to meet net zero

To achieve net zero and mitigate climate change, we must transition from fossil fuel-intensive energy pathways, yet progress on this remains slow. Philipp Steinberg, director general for economic policy in the German Federal Ministry for Economic Affairs and energy and ministry coordinator for sustainable development, speaks with Emma McGarthy, head of OMFIF’s Sustainable Policy Institute, about Germany’s strategy for doing this.

Emma McGarthy: Germany aims to be carbon neutral by 2050 and has adopted a strategy for an energy pathway to 2050. Could you talk me through the strategy and the policies that have been adopted to ensure this works and what regulatory and structural reforms will be required?

Philipp Steinberg: Actually, we have toughened our goal, so we aim for climate neutrality by 2045. To achieve this, we are mainstreaming climate policy on the macro level. We have regulatory instruments we need to use to attain those goals. That is first and foremost carbon dioxide pricing on the national and European level, and we would like to bring it onto the international scene as well.

So, we are campaigning for an alliance of states who have the same goal, ideally the same instruments, with a combined adjustment mechanism to protect this alliance. If we use carbon dioxide pricing as a signal, and we want to maintain our industry, we need to put a tariff or mechanism at the border to create a level playing field.

Public policy is important as a supporting instrument because you need the industry to transform to help establish a carbon-neutral state. So, we are developing support instruments like carbon contracts, subsidies and we have other support programmes for the price of producing climate-friendly energy. We are providing finance in the climate and transformation fund, which is financing those who support that programme. This then needs to be accompanied by social and economic measures to ensure the ordinary citizen gets support as well.

EM: Germany has implemented a 25-year charge on carbon emissions. What impact has this had and how will the money raised from this be used? Will it go into the funding that you mentioned?

PS. We started off with €25 [per tonne of carbon dioxide] and we are increasing it every year, up to a threshold of €60. It’s not totally free floating, but it’s supposed to influence citizens. It is now accelerated by the price developments because of Ukraine. The national carbon dioxide price is €8bn, and the main action that we are taking now is to abolish the renewable energy surcharge.

To decarbonise the economy, we need to use green energy, and therefore we need to make it cheaper, otherwise industry wants to circumvent it. We are using the money coming from the carbon dioxide price signal for other measures aiming at the transformation of the economy.

EM: To reach the targets that you’ve set, there are plans to shut down all lignite and heavy coal power plants by 2038. How would this be managed, especially considering Germany’s car industry, which employs over 2m workers?

PS: We want to phase out lignite and heavy coal by 2030. We have set up a €40bn support programme to help the regions affected find alternative economic uses. We must do something to stimulate new industry to come into the regions. And I think we can say we are quite successful. We need to attract that skilled labour. The car industry is not directly concerned by the coal phasing out, it’s more those working in the coal industry and in related companies supporting the lignite and coal businesses.

EM: There’s been a lot of conversation around the EU taxonomy and Germany’s role. The EU taxonomy has awarded a green label to gas and nuclear power, and the German government has generally opposed nuclear energy. Could you talk me through this and what this means for the EU taxonomy and its implementation?

PS: The debate has been going on for four decades now or more. The German position is upheld by this government and the green minister. They are of the opinion that it is dangerous. Second, the waste question is still not answered. I know in Finland they’re building depositories for nuclear waste, but in Germany, even those who are advocating for nuclear power say ‘not in my region’. So, although it is relatively low in carbon dioxide emissions, the negative aspects outweigh the positive effects.

And then there is gas as a bridge technology. We have three nuclear power plants still operating. And by the end of this year, if things don’t change in Ukraine, we will need more energy. Renewables in the electricity sector already make up over 40% but we are not there yet. So, we need flexible energy sources and as things stand that needs to be gas, which is not sustainable. We would have liked the EU to come up with a bridge legislative act clearly highlighting this. I have problems thinking that investors will be happy to buy nuclear energy and think it is sustainable.

EM: One of the concerns of nuclear is, like fossil fuels, it’s incredibly difficult to phase out. Do you think that if you develop a nuclear energy plant, you are then potentially going to be locked into that source for the coming decades?

PS: Our experts say they have planned for years and years to phase them out. They don’t have the trained personnel anymore, they don’t have the necessary combustion material anymore. And if you restart building plants, you can’t find any insurance. Who will insure a nuclear power plant? It must be the state. The kilowatt hour is also much more expensive with nuclear than renewables. This is really beyond all facets of what is sustainable. There is no business case for nuclear anymore if there’s not massive subsidy from the state.

EM: You touched on gas being a bridge, and the German government has included gas in your taxonomy as it transitions from coal. So how will gas-fired power plants support the transition to renewable energy and the reduction of emissions? Is there a risk that, by doing this, it could divert development and capital allocation away from renewable energy sources?

PS: It’s quite clear that new gas-fired plants must be hydrogen ready. So green hydrogen will be increasingly phased into those gas-fired plants so there is not a lock in effect with natural gas. But there can be a gradual transition towards green hydrogen. You need to use electricity storage, demand flexibility and highly interconnected markets exploring different renewable energy sources across Europe.

Because of the aggression against Ukraine, we are accelerating our departure from gas as quickly as possible by increasing renewables. Before, 55% of our natural gas came from Russia, so it’s a bit difficult to diversify. But if you make gas plants hydrogen ready, then we can transition from natural gas to green hydrogen. And that’s economically and ecologically viable.

EM: You’ve mentioned that the German government is now subsidising renewable energy. What’s the stance on continued subsidisation of fossil fuels? Is that still happening and is there a divestment?

PS: Well, this is really complicated. We have two developments which are reinforcing each other. First, we had Covid-19 and the dislocation of international value chains and distribution channels which has created huge turmoil and an increase of energy prices. And now we have the Ukraine war, which is creating even more shortages of the fossil energy we want to phase out but are still dependent on.

So, this creates inflation of 7% or more, and it creates higher prices of not only gas and heating for households and the gas industry, but also higher prices for basic goods. In Germany we are reducing our energy tax on fuel, so this is not totally consistent with the price signal approach. For every politician, this is very hard to handle. But it’s only temporary. It’s not a totally coherent approach right now due to the crisis, and we live in a democracy, so there are different interests.

EM: How do you think the current geopolitical crises will impact Germany’s renewable energy transition? We talked about shutting up the coal plants, would it have an impact on that? And do you think it will have an impact in terms of Germany’s current energy mix, targets and the way that renewable energy is being developed and transitioning?

PS: I think in the mid and long run, it will accelerate our transition towards renewables dramatically. On 6 April we passed a law in our cabinet which provides for massive speeding up of renewables. We have designated 2% of our land for renewables and we are speeding up planning procedures. There’s a clear priority for renewables and we have raised our targets substantively for wind turbines for offshore and onshore.

If we have learned one thing from Ukraine, it’s the need to diversify and become less dependent in the very short run. However, it might make it a bit more difficult because we are now talking about liquified natural gas and even running the coal plants longer than expected. It might mean to reduce dependency from Russia, we need to diversify to LNG coming from fracking in the US or elsewhere, which wouldn’t have been considered before the crisis.

EM: I think the Ukraine crisis has also shown that action can be taken very rapidly by the international community when it’s needed. We just need that urgency for the climate.

PS: I think the combined crises of Covid-19, Ukraine and the climate emergency show the need to work together. It would be great if we could find this feeling of urgency as well for the climate crisis. And it’s not that we can’t afford to talk about climate policies because of the Ukraine war, it’s because of the war we need to talk about it with more urgency. We need to think about climate change collectively and work together.