New coal law will be ‘canary in a coal mine’ moment for German presidency

As Germany takes the helm of the EU, its problematic coal law risks sending out the wrong signals, writes Riccardo Nigro.

This article was originally published in Euractiv

The German presidency of the EU could not have started at more crucial times. While Europe gears up to recover from the Corona health crisis and economic shock, the climate emergency has become increasingly pressing – May 2020 was the hottest month on record – and according to the IEA the world has six months left to change its course.

Leading the EU towards the post-covid world will require the German presidency to be pragmatic and imaginative; bold policies to protect people’s health, relaunch the economy and boost employment must be coupled with a green transition that will make our ecosystems and societies more resilient through the European Green Deal measures.

However, when it comes to coal, premises are not encouraging. Quite symbolically, at the very same time as Germany takes the helm of the EU, the Bundestag could approve tomorrow the so-called “coal law”, shaping the German coal phase out by 2039. This law is outdated and unambitious, and risks setting a bad example for other member states which are still clinging to the most polluting fossil fuels, and delaying a necessary and overdue coal exit.

First of all, the 2039 deadline is just too late. Coal is a major contributor to climate breakdown, and must be phased out by 2030 at the latest for the world to have a chance to keep the rise in global temperatures below 1,5°C, as recommended by the IPCC. Last spring, Members of the European Parliament overwhelmingly backed a motion calling for EU countries to stop burning coal for energy by 2030. The same date was set as a coal exit benchmark by the Organisation for Economic Cooperation and Development (OECD).

The German model is already causing other coal-addicted countries to postpone their coal exit; inspired by the German example, Polish operator PGE is considering to withdraw its “entire hard coal and lignite fleet in 20-25 years” – that is, 10 to 15 years too late. Moreover, the recent opening of a new coal facility by the German operator Uniper in Datteln has further spread the anachronistic message that coal has still a role to play in Europe’s future. If approved, the German coal law will set a negative precedent that riks jeopardising the climate-neutrality target of the whole Union.

At the same time, the law provides that Berlin pays €4,35 billion to compensate coal utilities for lost revenues. However, German utilities are already benefiting from massive direct and indirect subsidies to fossil fuels, quantified in €5,6 billion per year in terms of health and other air pollution related costs.

Germany could save up to 5.4 billion per year in air pollution damage cost by just enforcing the strictest air pollution limits for large combustion plants laid down by EU regulation (LCP BREF), and requiring operators to meet tested and economically achievable best available techniques. This would also trigger anticipated shutdowns of the most polluting utilities as soon as 2021, with additional benefits for the climate. On the contrary, the German Ministry for the Environment has been defending the interests of the coal industry by applying the absolute minimum level of protection allowed by EU pollution rules.

Indirect subsidies also include the exemptions from repairing the damages caused by coal mining and burning to water bodies. This is the case of the Frankfurt-Oder region, where LEAG’s mining operations in the Lausitz area are forcing the local public water provider to invest €10 millions to desulphurise drinking water, which LEAG does not intend to pay back.

According to ClientEarth, not only could the law be rejected by the European Commission for providing state aids to coal giants, it will also recklessly allow LEAG’s six coal power plants to extend their life-span, as well as to continue LEAG’s business as usual operations thanks to taxpayers’ money.

This would not be the first time the German coal sector is heavily subsidised by public money: national coal has been used in German power plants for decades only because its price was kept artificially low by the state. Now, once again, Germany is about to grant billions of euro to coal operators such as LEAG for sticking to their business as usual scenarios, and even delaying the already planned closure of certain facilities. We could call this 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 using state aid to keep their outdated business alive.

Coal economics were already bad before the Covid-19 crisis: according to a study by Sandbag, 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. Moreover, the profitability of German lignite plants would shrink even more if the government implemented stricter emission limits for dangerous pollutants such as NOx and mercury, in line with the best available techniques (LCP BREF).

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. Covid-19 has simply accelerated an already existing trend: according to the IEA, “power sector revenues are set to fall by about 7% worldwide in 2020, though coal-fired power is likely to be hit harder.”

In such a scenario, Germany has the opportunity and the responsibility to support a green recovery and guide the EU towards a climate-neutral and zero-pollution future.

The corona crisis has caused an unprecedented drop in greenhouse gas emissions, but economic shocks are often followed by an emission rebound. We cannot afford this: our governments have a unique chance today to put global greenhouse gas emissions into structural decline and contrast climate breakdown, while relaunching our economies and creating millions of new jobs, by investing in low-carbon solutions. Renewables are mature enough to guarantee energy security in the long term, other promising technologies like renewable hydrogen will dramatically reduce emissions in hard-to-abate sectors. Last but not least, boosting energy efficiency in buildings, industry and appliances will keep energy consumption under control, while contributing to the economic recovery and sustaining employment.

Our policy makers have little time to make very important decisions which will shape economic and energy infrastructures for decades to come, and determine our chances to meet our energy and climate goals. In the next six months, Germany must lead the EU by example.