Germany wants to export its green ambitions and green technologies

Michal Kędzierski (©OSW)

Obserwator Finansowy: What were the provisions of the German climate policy that prompted the country’s Federal Constitutional Court to determine that the law violated the rights of German citizens?

Michał Kędzierski: The law put into question by the Federal Constitutional Court concerned the medium- and long-term objectives of Germany’s climate policy. It established an emissions reduction target for 2030 pursuant to which the reduction was supposed to reach 55 percent in relation to the baseline year 1990. The law also introduced emissions reduction paths in the individual sectors until the end of the decade, as well as the long-term goal of reaching climate neutrality by 2050.

But these goals are in line with the assumptions made at the European Union level…

In its ruling in April the court stated that the present wording of the climate policy law – and more specifically, the fact that it includes a path for emissions reduction until 2030 and a long-term goal for the period until 2050 – could result in the postponement of a substantial part of the burdens associated with climate policy until after 2030. This, in turn, creates the risk that future generations will be disproportionately burdened with the consequences of climate change and “drastic” restrictions on personal freedoms resulting from the activities necessary to counteract this change in the future.

The Federal Constitutional Court ordered state authorities to pursue a path of emissions reduction after 2030 that will ensure a fairer division of the burdens of climate policy.

 The court also held that the German constitution obliges the state to conduct a climate policy, understood as the pursuit of carbon-neutrality and the implementation of the Paris Agreement of 2015. In this judgment, the Federal Constitutional Court ordered state authorities to pursue a path of emissions reduction after 2030 that will ensure a fairer division of the burdens of climate policy.

Why is this so important?

This is the first time that the court has upheld a complaint concerning climate policy, and secondly, it has unambiguously ordered the state to implement this policy, understood as a reduction in emissions. The court stated, for example, that it would be insufficient to pursue measures only aimed at adapting to climate change or to abandon the goal of reducing emissions altogether based on the fact that this is a global challenge and other countries are not implementing sufficient measures.

The reasoning relating to fair burden-sharing between generations is particularly interesting. Is this purely about financial costs, or are there some other values at stake here?

Obviously, the financial costs are also important, but in the judgment more emphasis was placed on the rights and freedoms of future generations. If we assume that too little will be done in order to stop climate change in this decade and that action within the context of climate policy is postponed for later, this will result in the need to take more drastic interventions in the rights and freedoms of citizens in the future. A fairer distribution of burdens in time basically means planning and launching the necessary actions now.

And how did the authorities react to the judgment?

The court ruling caused a massive stir on the political scene. The Federal Constitutional Court issued one, fairly narrow demand – to supplement the act with specific targets for the period after 2030. That is all. It did not dispute the national target for 2030. However, the call for a fairer distribution of the burdens has been interpreted in the country as a suggestion to accelerate the reduction of emissions in the German economy already in this decade.

Hence the prompt response of the governing CDU/CSU-SPD coalition, which was afraid of the political consequences of this ruling in the ongoing election campaign and presented plans that are much more ambitious than previously expected. Both governing parties are competing for votes in the election with the Green Party, which became an obvious beneficiary of the court judgment.

What are the proposed changes?

The climate in monetary policy

One novelty in the draft act presented by the government, which is supposed to be adopted in the Bundestag and the Bundesrat by the end of June, is not only that it increases the emissions reduction target for 2030 from 55 percent to 65 percent (which was expected anyway as a result of new EU climate policy objectives), but also that it pushes forward the deadline for the achievement of climate neutrality by five years, that is, to 2045.

Does the new law provide methods and tools for the achievement of these goals?

The existing climate policy architecture was geared towards the objective of reducing emissions by 55 percent by 2030. The amendment only establishes new long-term objectives while the detailed instruments are to be agreed and adopted in the next term of the Bundestag. Parliamentary elections will be held in September and the future government will make decisions on how to achieve the new, elevated goals, and how to decarbonize the economy faster. The political and industrial circles argue that next term of the parliament will be decisive for the success of the green transformation. The deadlines of 2030 and 2045 seem remote, but from the perspective of business planning this is not the case at all.

Have any specific solutions been presented?

The government’s draft does not contain any. Meanwhile, in the public discourse there are opinions that, for example, Germany should completely abandon coal-based energy production already in 2030 if it wants to achieve an emission reduction of 65 percent by the end of the decade.

But Germany is also simultaneously phasing out nuclear power?

Yes, Germany will shut down the last nuclear power plants by the end of 2022 and at the same time it has fairly large generation capacities in coal-fired power plants that it wants to shut down – according to the current plans – by 2038, with the possibility of pushing the date forward by 3 years. The new assumptions concerning the climate policy will certainly strengthen the pressure to accelerate this process.

What energy sources are supposed to replace the ones that are being withdrawn?

In principle, these are mainly supposed to be renewable energy sources, temporarily supplemented by natural gas. The previous plan assumed that in 2030 the share of renewable energy sources in electricity consumption in Germany will amount to 65 percent. Now it is said that this target should reach 70 to even 80 percent.

It should be noted, however, that decarbonization doesn’t solely apply to the energy sector, although the expectations towards this industry are enormous, because in the short-term significant progress will be easiest to achieve here. However, this process also involves other areas such as heating or transport. The latter includes a faster transition to electromobility, development of railways, creating incentives for passengers to switch from planes to trains, and from cars to public transport. Finally, the transition involves far-reaching technological changes in the industry including the shift to electrification or the use of hydrogen in the place of fossil fuels. These are changes requiring a broad approach, with actions facilitating the transformation, but also stimulating and regulating the introduction of new green technologies.

I’m noticing a contradiction here. On the one hand, we see the phasing out of existing energy sources – coal and nuclear power – but on the other hand, the authorities are planning an increase in the consumption of electricity due to the development of electromobility and rail transport.

The move away from fossil fuels towards renewable energy sources is the basic assumption of the transformation. The most contentious debate in Germany will concern the deadline for the withdrawal of coal power. However, the absolutely essential condition for the success of the country’s energy transition (German: “Energiewende”) will be the sufficient pace of power generation capacities’ expansion in the renewable energy sources replacing the phased-out coal and nuclear power plants. Germany has recently experienced significant difficulties in this area. Especially the expansion of wind farms has slowed down in recent years. The current rate of development of renewable energy sources will not allow for the successful achievement of the goals included in the transition plan. It is also an issue of the expansion of transmission networks as there have also been some delays in investments in this area. Meanwhile, network expansion is also a key condition in order to ensure the transport of energy from the wind farms in the north to the country’s industrial centers in the south.

The EU reconstruction programs place great emphasis precisely on energy transformation. However, Germany likely won’t receive a lot of these funds, as it is, after all, a net contributor.

In Germany, a lot of attention is paid to ensuring that the post-Covid-19 reconstruction is combined with a green transformation based on new, clean technologies. Germany wants to be a leader when it comes to hydrogen technologies and wants to export them to the world. This is based on the hope that global decarbonization will create a gigantic market for new green technologies. Germany has the necessary know-how and enterprises already involved in these technologies. It has the potential to assume a leading position in these new markets. In this context, green technologies, including hydrogen-based technologies, are seen, on the one hand, as an instrument of climate policy, and on the other hand, as an instrument of industrial and economic policy.

In Poland, the most carbon-intensive sectors – e.g., energy production, mining, fuel production – are controlled by the state. Therefore, it is theoretically easier for the government to influence their functioning. If the government wanted to shut down the mines or the power plants, it could do that with a single decision of the relevant ministry. However, in Germany these sectors are privately-owned. So how exactly does the implementation of climate policy look like? Is there any cooperation or coordination between the state and the private sector? Or maybe the government believes that it can force companies to take certain actions through appropriate regulations or that it can encourage such actions using the right set of incentives? Or perhaps the government hopes that market forces will ultimately lead to the implementation of the appropriate solutions?

In Germany, these relations are very close. Big industry has always had open access to the world of politics and the development of the climate policy largely takes place in a close dialog between the political and business circles. Sometimes political concerns force the acceleration of certain changes, as has been the case with the phasing out of coal energy. In other cases, it is actually the business community that is pushing for acceleration. For example, the industry itself has ambitions and plans relating to hydrogen technologies and sees this as a promising, attractive area for development. These plans will not materialize without the support of the state in the initial phase. That is why German companies are waiting for the state to create adequate, favorable regulations, to establish pilot projects, and to support the creation of a market and the scaling of production.

Such regulations and tools are to a greater or lesser extent agreed with the representatives of the business community in virtually every sector of the economy.

So, this is not a question of some particular politician or political party?

No, this is a well-established system. Germany is a highly industrialized, export-oriented country – therefore it is not surprising that politicians are carefully listening to that community, because it provides the basis for the success of the local economy.

Is it possible that the changes taking place in Germany could influence European policy? From the short-term point of view – if the Germans want to shift the costs from the future to the present, then German companies could lose their competitive advantage. Are there any ideas to push these ambitious goals onto other countries?

This is exactly the kind of thinking that is exhibited by the industrial and political circles in Germany. German industry is concerned about competitiveness and is pressing the government on this issue. Berlin will now act in order to ensure that the climate policy instruments are not unilateral, national, but that they are applied at least across the EU as a whole. However, the optimal solution for the German economy would be to enforce them globally. Only then will decarbonization become more of an opportunity than a challenge.

Germany will try to push its ambitious solutions onto the European Union and will attempt to address these proposals in international forums such as the G-7 or G-20. Within the EU, for example, it will push for a faster adoption of hydrogen technologies, quicker development of offshore wind power, integration of the energy markets, and facilitation of the flow of energy between countries.

Could Poland gain anything from the changes taking place in German politics, or should we rather be looking for ways to protect ourselves from their effects?

Considering how strongly the Polish economy is linked with the German economy, and how many Polish companies and Polish subcontractors are dependent on their German partners, the acceleration of decarbonization and Germany’s transition towards new technologies will sooner or later require adaptation on the part of Poland.

The pandemic could lead to the popularization of responsible investment

By way of example, we are closely cooperating in the automotive industry. This sector is currently undergoing a deep transformation in Germany and all the major companies are investing in electromobility. This is a challenge both for German and foreign suppliers, including the Polish companies. Another example is that the carbon footprint throughout the entire production chain is becoming an increasingly important issue for many German companies.

As I’ve said, Germany will certainly act in order to accelerate the transformation within the EU as a whole – especially after the adoption of a more ambitious national climate policy. This, in turn, will also constitute a major challenge for Poland in some sectors. We will have to take this challenge on and decide how to tackle it.

When it comes to automotive batteries, they have recently been the greatest success of Polish exports.

This is one example showing that we can also gain on the green transformation. It’s just that we need to have a good understanding of the coming trends and invest in advance in the innovative technologies of the future. Meanwhile, in the case of technologies increasingly seen as outdated – not just in Germany or the European Union, but virtually all over the world – we need to come up with well-planned transition processes.

Michał Kędzierski is a senior specialist at the Department for Germany and Northern Europe of the Centre for Eastern Studies. His areas of expertise include the energy and climate policy of Germany, the transformation of the transport sector, and the process of decarbonization in Germany.

Michal Kędzierski (©OSW)

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