The German government plans to spend billions of taxpayers’ money to prop up an industry in its endgame. Here is why the European Commission should stop this artificial life support, writes Roberta Arbinolo.
As part of its coal phase-out, Germany promised €4,35 billion payouts to compensate coal operators for closing their plants by 2039 – almost a decade later than what required to keep the global temperatures rise below 1,5°C.
As the European Commission investigates the compatibility of such subsidies with EU competition laws, NGOs are calling on EU officials to reject a state aid plan that is “unproportionate and unjustified”, and ensure public money is used to finance a truly green transition – not polluters.
Unproportioned and unjustified
Germany’s coal exit strategy has been heavily questioned by environmental groups, who have criticised the German government for acting too late, breaching pivotal EU principles and wasting public money to subsidise polluting corporations.
Back in November, the European Environmental Bureau (EEB), CAN Europe and Greenpeace highlighted its key flaws in an open letter to the European Commission, as did EEB member organisation ClientEarth. By heavily subsidising lignite corporations, the German plan encourages them to keep mining and burning the most toxic kind of coal instead of embracing the energy transition and, in some cases, to even prolong operations. At the same time, the scheme penalises those companies that were prompted to adapt their businesses, and negatively affects the market value of renewable energy sources. Moreover, the state aid is not conditioned to the full respect of EU standards to reduce pollution and improve industry performance, such as Best Available Techniques (BAT) for Large Combustion Plants. It also entails so-called compensation to polluters on the basis of untransparent calculations, which fail to take into account the loss of profits that coal companies are already experiencing, as well as the extra costs their activities impose on people and nature; it even covers the rehabilitation costs of lignite mines – a bill that should be footed by polluters, not the public.
Welcoming the Commission’s investigation on the case, ClientEarth’s State aid lawyer Juliette Delarue said: “The Commission has corroborated our doubts – looking into the background of these planned payouts raises more questions than it does answers”.
The (carbon) price is wrong
A key aspect that the German compensation package overlooks is the rising price of carbon emissions, which will further climb due to EU environmental, energy and climate targets, as well as the international commitments under the Paris Agreement, which requires to phase out coal by 2030 at the latest.
The plan presented by the German government includes projections for EU carbon pricing allowances such as €20.74 per tonne in 2025 and €35.67 per tonne in 2040, which do not reflect the actual trend. In fact, the current price of CO₂ has already reached €51.40 per tonne, and has grown by 170% over the past year. And yet, this price does not reflect the true cost of CO₂ emissions: a recent report by the OECD shows that € 120 per tonne would be a better estimate of the carbon price needed in 2030 to achieve decarbonisation by mid-century, and would also be more in line with recent estimates of overall social carbon costs.
But even if we consider a lower carbon pricing (i.e. starting from the current price and assuming a linear allowance cost growth from 2021 to 2039), the carbon costs associated with an earlier closing of their production units would still be considerable: ca. 19.5 billion for RWE and €39 billion for LEAG. This means that corporations required to pay the carbon allowance will become financially inviable and naturally have to cease their operations – rather than being able to argue for state compensation.
Coal economics have been plummeting for years and they reached a point of no-return in May 2019.
In this context, the German case is particularly emblematic: the German lignite fleet’s gross profit had already 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.
Even German Federal Ministers recognised that, in line with the current energy scenarios, the tightened EU climate target and the associated price increase for rights to CO₂ emissions, Germany will leave coal behind “faster than previously planned”. “We will probably no longer convert coal into electricity in Germany by 2030”, said Environment Minister Svenja Schulze back in April at an energy conference in Berlin, and Economics and Energy Minister Peter Altmaier also admitted he expects coal power to end sooner than the 2038 deadline set by the German climate law.
“This is why subsidising German coal would be an intolerable waste of public money” said Christian Schaible, Policy Manager for Industrial Production at the EEB.
“The coal era is over and operators have known it for years, but they chose not to adapt. It is just unfair to have taxpayers foot the bill for short-sighted business decisions, or to draw on the public purse to improve profit margins for corporations and their shareholders. Public money should be redirected to support sustainable alternatives such as renewable energy instead”.
Make polluters pay their debt
The German compensation plan also fails to reflect the negative externalities of coal operations: from carbon debt to environmental degradation and health impact, coal mining and burning come at a high price for society.
One of the funding principles of EU environmental law is that polluters should be held accountable for the damage they cause, and bear the cost of restoration – in line with the so-called ‘polluter-pays principle’. According to this principle, coal companies should compensate society for the their carbon emissions, as well as for air and water pollution and the ensuing burden on public health.
“Instead of subsidising polluters, the German government should make them pay for their air pollution, water and carbon debt. It’s about time we get our money back” said Schaible.
In terms of carbon debt, the EEB estimates that, if German coal giants RWE and LEAG were to run their units beyond 2021 under the current phase out dates and scientifically accepted minimal carbon costs, they should be held accountable for a compensation of respectively of €26.5 billion and €42.4 billion. This is almost 16 times the amount of public money the German government plans to hand them as state aid.
When it comes to air pollution, the Industrial Emissions Directive requires coal operators to comply with emission ranges based on the current ‘best available techniques’ to prevent pollution (BATs) by August 2021. If the largest lignite plants were required to apply the stricter performance levels achieved by the use of BATs, Germany could save € 5.6 billion a year in terms of health and other air pollution related costs. Still, the German government voted against these standards to protect the interest of the lignite industry, and German coal operators continue to resist complying with tighter emission levels.
The EEB argues that the companies should be held liable for the impacts of such avoidable pollution and harm to public health, and that the costs of air pollution caused by coal operations should be deducted from any compensation claim.
If RWE and LEAG were to run all their units up to the foreseen closure dates under the current conditions, this would translate to health costs of respectively € 12.9 billion and € 27 billion due to air pollution alone. On the other hand, the German government could save up to €32.2 billion by simply requiring the two operators to comply with the stricter ranges of EU standards – a sum much higher than the compensation promised to the two companies.
Mind the gap
When it comes to water, the German public is already paying a double price: not only taxpayers are bearing the burden of water pollution caused by RWE and LEAG’s lignite operations, they are also footing the companies’ water bills, as German regional governments are granting them a free ride.
German coal companies consume, pollute and displace millions m³ of groundwater for free – or at drastically reduced prices – in breach of EU water laws. In North Rhine-Westphalia, the only German region where the coal industry pays for water, people pay 100 times more than coal companies for the water they use.
In addition, the German government plans to compensate companies for the rehabilitation costs of mining sites. However, an earlier coal phase-out would allow to bring down those costs, reducing the mines’ impact on groundwater levels, the amount of water needed to flood smaller pits after closure, and the sulphates and iron oxides contamination of water bodies.
At the same time, remediation costs for the damage inflicted by the mines should not be considered elegible for state compensation as they represent a typical case where the ‘polluter-pays principle’, enshrined in EU Treaties, should be applied.
End therapeutic obstinacy
Germany’s attempt to artificially keep the lignite industry alive through state aid is not an isolated case. The European Commission is already investigating Romania’s plan to hand out a billionaire subsidy to Oltenia, the country’s most polluting company, and Poland is also at risk of following a similar route.
In this context, the role of the European Commission as a guardian of EU principles and treaties could not be more important.
Riccardo Nigro, Campaign Coordinator for Coal Combustion and Mines at the EEB, told META: “State aid decisions will play a pivotal role in promoting the energy transition and ultimately make the Green Deal come true. We hope the Commission will use its power to hold polluters accountable, speed up the transition beyond coal and channel public funds towards renewable alternatives”.