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Saturday, September 30, 2023

Expert flays compensation package in Germany’s 2038 coal phase-out plan

The German government on Wednesday, January 29, 2020 passed the Coal Exit Law (or the Kohleausstiegsgesetz), about a year after the report of a Commission recommended such.

Angela Merkel
Angela Merkel, German Chancellor

According to the new legislation, power generation from lignite and hard coal, accounting for 28 percent of gross electricity generation in 2019, shall be stopped by 2038. While lignite operators will receive €4.35 billion in compensation, further compensation to hard coal operators will be determined and distributed through auctions. In addition, coal regions will receive €40 billion in structural aid.

In a reaction, Ottmar Edenhofer, Director of the Potsdam Institute for Climate Impact Research (PIK), frowned at the compensations, adding that shutting down the power stations could have been achieved more cheaply

Edenhofer, who is also of the Mercator Research Institute on Global Commons and Climate Change (MCC), said: “It is good that a timetable to phase out coal in Germany has now been adopted. However, the government unnecessarily ramps up the cost: the high direct payments to power plant operators, compensating for shutdowns, are wrong. They undermine the polluter-pays principle, wherein anyone causing emissions should pay accordingly.

Now the person who ceases to cause emissions is rewarded financially. This is why operators have kept some power plants on the grid longer than is economically feasible – so that they can now collect compensation payments.”

According to him, it would have been better if German policy had designed the billion-euro coal phase-out project around a market-based core.

His words: “Structural aids for the coal regions are important because they help to finance new jobs – but when it comes to the phase-out itself, politicians should have relied on the carbon price. Everything would have been much cheaper. We saw last year that the rising prices in emissions trading led to a decline in coal-fired power generation. A minimum price would have displaced coal without having to pay expensive compensation.

“The way the German coal phase-out is reflected in European emissions trading also remains unsatisfactory. In principle, the government wants to cancel the respective certificates and take them off the market. However, the amount of CO2 that is effectively saved can only be determined with great uncertainty.

“Thus, some of the certificates might be used elsewhere, which would counteract the climate effect of the coal phase-out. There is a simple solution to rule out this so-called waterbed effect and at the same time prevent uncoordinated action by national governments regarding the certificates: a sufficiently high European minimum price in emissions trading.”

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