Germany is planning to grant billions in public money to lignite corporations to shut down polluting plants, but people and nature have already paid plenty for German coal, and smarter policies are at hand.

The German government’s draft ‘compensation’ package, which is part of a reached with representatives of coal utilities and leaders of coal-mining regions, was published today. The deal which presents serious shortcomings, according to a former member German Coal Commission – a task force that brought together members of the Federal Government, federal states, unions and civil society to design Germany’s way out from coal.

Last week, a scandal broke as leaked documents published by De Spiegel revealed the coal phase out schedule plan is identical to the old mining plans of coal company LEAG, dating back to 2016. This means that LEAG will be handed up to €1.75 billion for just continuing with business as usual.

More money to air polluters

Part of the compensation package will go to lignite plants operators as a subsidy to take their units offline by 2030. However, lignite-fired power plants have already come at a high price for society. In terms of air pollution only, the largest operational 18 lignite plants cause a damage cost of €7.4 billion per year (based on 2016 emissions data)  

Lignite plants emit toxic substances such as nitrogen oxides (NOx), sulphur dioxide (SO₂), mercury and tiny pieces of harmful dust known as ‘particulate matter’ (PM), which pollute Europe’s air and water and impact human health, causing respiratory and circulatory diseases. To cut harmful emissions, the EU agreed in 2017 a new set of standards for power plants, set in the Large Combustion Plants Best Available Techniques Reference Document (LCP BREF). However, the German government has been delaying their implementation, which is due to apply by 2021 at the latest. 

Christian Schaible, Policy Manager for Industrial Production at the European Environmental Bureau (EEB), called this an indirect subsidy to lignite operators. If the largest lignite plants were required to apply the EU Best Available Technique (BAT) pollution standards, due to apply latest by August 2021, the health damage burden of continued lignite operation could be reduced to €1.8 billion a year, meaning society would save €5.6 billion a year in terms of health and other air pollution-related costs.

“This is a ‘polluter gets paid’ twist: instead of holding polluting industries accountable for the burden they inflict on citizens and taxpayers, the German government has been subsidising air pollution. The social and health cost caused by the lignite industry should actually be deducted from any compensation they get. It is the job of any public servant to put public interests first, this also means using regulatory prerogatives on emission control”, he told META.

In addition, the criteria to assign compensation and the operating conditions of the plants during the phase-out time will be negotiated between the government and operators, with no public participation involved.

Schaible added: “it is not acceptable to restrain the option of taking a regulatory approach, such as tighter pollution limits affecting operators, in closed-doors compensation talks between operators and undefined government officials, such decisions must be subject to public oversight.”

Money for nothing

Handing billion euro payouts to German lignite operators appears even more scandalous when considering that the profitability of the industry is falling at an unprecedented pace.

A recent study by Sandbag reveals the gross profit of the German lignite fleet collapsed by 54% in the first half of 2019, with a loss of €664 million, and no lignite unit being able to cover their full fixed costs. As the gap between power price and carbon price keeps narrowing, and new EU pollution limits hit on lignite plants, Sandbag estimates that lignite will remain loss-making over the medium-term, and could lose €1.8 billion over 2020-2022.

Germany’s draft law also foresees a special bonus for gas-fired Combined Heat and Power plants, which the very same operators could profit from and does not exclude compensation from being used for lignite mine recultivation.

Is that even legal?

In this light, the payouts foreseen by the German plan may not even be legal under EU state aid laws.

Any state aid compensation must be approved by the European Commission, which assesses whether it is really necessary on the basis of, amongst other things, future expected profits by the operators.

Sam Bright, Energy Lawyer at Client Earth, said:

 “To meet EU State aid criteria, operators receiving the money would have to prove they were not being given an unfair, market-distorting advantage. Given the dismal and rapidly deteriorating financial state of Germany’s lignite fleet, justifying major payoffs will be extremely hard from a legal perspective.”

There are better ways

The plan to subsidise coal giants for taking offline units they would shut down anyway is not the only flaw of the German phase out agreement.

A 2038 coal exit is too late for Germany to comply with the Paris Agreements – especially considering that the phase-out is only planned to come into effect from 1 January 2039.

The government will also allow the new plant Datteln 4 to go online as from summer 2020, against the German Coal Commission recommendation to never connect it to the grid. According to EEB member Friends of the Earth Germany (BUND), Datteln 4 would emit 8.4 million tons of carbon dioxide annually, which secures a place among the ten most CO₂ intensive coal power plants in Germany.

Kathrin Gutmann, Europe Beyond Coal campaign director, said:

“Allowing Datteln 4 to go online shows how unprepared the German government is to answer the call for climate action made by the 1.4 million people that took to the streets in Germany during the Global Climate Strikes in September. None of these people will believe they have been heard by their government.”

In addition, the phase-out agreement allows the destruction of entire villages like Keyenberg and Manheim to make room for the expansion of the Garzweiler and Hambach mines. Villagers will thus be forced to continue their legal struggle to rescue their homes from turning into an open cast lignite pit.

Christian Schaible told META the draft coal phase out law highlights a short-sighted approach by the government, which could have opted for fairer and more effective policy routes to take Germany beyond coal.

Back in December, the Netherlands set an example: the Dutch coal exit plan includes binding energy efficiency standards for power plants, which results in the shutdown of the less efficient utilities that cannot comply unless uneconomic investments are made. A net electrical efficiency standard of 40% would ensure the worst German lignite plants are taken offline, while also solving the compensation question and the risk for fuel switching (biomass) in one go. Moreover, the UK approach of introducing a carbon price floor has been very effective in achieving a coal phase-out, as showcased in a recent report by Sandbag and Europe Beyond Coal.

“Setting binding energy efficiency standards as a precondition to any compensation is a much smarter way to shutdown the worst lignite boilers. It is not a fair policy approach to serve corporate interests by handing out money for business as usual pollution instead of requiring those to pay more for the air pollution they cause”, said Schaible.

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