On Friday, 20 September, the German Climate Cabinet agreed on the guidelines for German climate policy for the coming decade, set against the backdrop of EU targets. The core topic was additional CO2-pricing in the mobility and heating sectors. From 2021 a CO2-price of €10/ton will apply to the German transport and buildings sectors. The price will rise to €35/ton until 2025. But Simon Göss says the national emission trading system and new support programmes for private individuals and companies in the buildings and transport sectors are not enough and can only be the start for reaching Germany’s 2030 climate and energy goals. He looks at all the major themes, including the Emissions Trading Scheme (both EU and German), the changes to electricity prices, promotion of renewables, buildings renovation, and public and private transport.
Reduction targets within the European framework: ETS and non-ETS
Until 2030, Europe wants to reduce greenhouse gas emissions by at least 40 percent compared to 1990. The European Emissions Trading Scheme (EU ETS) is intended to reduce emissions by 43 percent by 2030 compared to 2005 for major emitters from industry and the energy sector, as well as from EU-wide air traffic.
For non-ETS sectors, i.e. transport, buildings, small industry and agriculture, the responsibility for reducing greenhouse gases lies with the EU member states. Defined annual budgets for CO2-emissions must, however, be adhered to within the framework of the EU Climate Protection Regulation. Germany’s emission target in the non-ETS area is a 38 percent reduction in 2030 compared to 2005.
…and the national targets
In the Climate Action Plan 2050, the German government has set national reduction target of 40 percent by 2020 and 55 percent by 2030 compared to 1990. Figure 1 shows the reduction targets under the Climate Action Plan 2050, also used for the Climate Package 2030.
For the year 2020, Germany will probably achieve a reduction in emissions of only 30 to 35 percent compared to 1990 and will miss its self-imposed target of 40 percent. Figure 2 shows the development of German CO2-emissions since 1990 and the national targets for the most important sectors up to 2030 on a percentage basis.
Between 2005 and 2018, greenhouse gas emissions in Germany fell in the energy and buildings sectors, while they stagnated or even increased in the industrial and transport sectors. In all four sectors, however, a higher percentage reduction in emissions between now and 2030 is needed than has materialised since 2005.
CO2 pricing is too low
A national emissions trading system (nEHS) will be implemented from 2021. It covers emissions from the combustion of fossil fuels in heat, building sector and energy and industrial plants, which are not part of the EU ETS. Emissions from fossil fuel combustion in the transport sector (excluding aviation) will also be subject to the nEHS.
The allowances will have to be purchased by trading companies or suppliers of fuels. The German government has agreed on a fixed-price system, with the issuance price rising from 10 EUR/ton in 2021 rising to 35 EUR/ton in 2025, as shown in Figure 3. Obviously, the proposals of the Climate Protection Programme 2030 remain far below the prices for CO2-emissions necessary to achieve the reduction targets according to scientific calculations.
No upper limit has been set for the number of certificates to be issued until 2026. If emissions in the heating and transport sectors are higher than Germany’s emission allocations within the EU, the country would have to buy the certificates from other member states. The proposed CO2-pricing until 2025 will increase the price of diesel fuel by 3 ct/litre in 2021 and by 10 ct/litre in 2025. The switch to electric vehicles is unlikely to be stimulated by this moderate increase.
The amount of CO2-certificates that will be auctioned from 2026 is calculated from the objectives of the Climate Action Plan 2050. For 2026, a minimum and maximum price of 35 and 60 EUR/ton, respectively, applies.
Reductions in electricity prices won’t incentivise sectors enough
The revenues of the nEHS will be used to gradually finance levies and taxes on electricity. From 2021 the renewable energy levy (EEG-levy) will decrease by 0.25 ct/kWh, in 2022 the reduction will be 0.5 ct/kWh and in 2023 0.625 ct/kWh. With an EEG-levy of about six to seven ct/kWh, the reduction by 2023 reduces the levy by about 10 percent. The electrification of the transport and heating sectors will thus be promoted marginally at best.
Promoting the renewables sector
The cap on PV is gone. If the cap remained, no remuneration would be paid to PV installations smaller than 750 kW if more than 52 GW of PV is installed in Germany.
The target for the expansion of offshore wind energy increases from 15 GW to 20 GW in 2030.
A minimum distance of 1,000 metres from residential areas and villages should apply nationwide to wind onshore. A study by the Federal Environment Agency showed that such a distance rule could limit total onshore wind capacity to 63 GW. However, the Climate Protection Programme 2030 also allows federal states and municipalities to opt out of the minimum distance rule. The federal government thus hands over the decision for further expansion of onshore wind energy to the federal states and municipalities.
How to achieve 65 percent of renewables in electricity consumption by 2030 is still far from clear.
Increased support for renovation in the buildings sector
The existing investment promotion programmes in the building sector are to be bundled and optimised in a new concept, the Federal Support for Efficient Buildings (BEG). Application procedures will be streamlined and simplified.
When heating systems are being replaced, an “exchange premium” covering 40 percent of the costs, aims to aid the switch to renewable heat or efficient hybrid heating systems. From 2026 the installation of oil-fired heating systems will no longer be permitted in buildings where climate-friendly heat generation is possible.
A potpourri for the transport sector
In order to make transport more climate-friendly, the Climate Protection Programme 2030 focuses on the promotion of electric vehicles and charging infrastructure, the expansion of public transport and cycle paths, the shift of traffic to rail, a CO2-dependent vehicle tax and higher costs for short flights.
In 2030 there should be a total of 1 million public charging points. A master plan “charging station infrastructure” will clarify the requirements with automobile manufacturers and the energy industry. The purchase premium for electric cars will be extended from 2021 until 2030 and increased for vehicles with a price below EUR 40,000. With these measures, seven to ten million electric vehicles are to be registered on German roads by 2030.
Modernisation of rail transport
Public transport is to be improved by increasing federal funding to EUR 1bn per year from 2021 and to EUR 2 bl. from 2025. To make rail passenger transport more attractive, the federal government and Deutsche Bahn intend to invest some EUR 86bn into the rail network by 2030. The value-added tax on rail tickets for long-distance traffic will be reduced from 19 to 7 percent from 2020 onwards. It is not certain whether a 10 percent reduction in train ticket prices will incentivise a switch to personal rail transport.
Tax advantages for low-emission vehicles
The climate package states an ambitious target: one third of all mileage in heavy road freight transport in 2030 will be achieved by electricity or electricity-based fuels. A CO2-surcharge on the truck toll is intended to promote climate-friendly drive technologies. A law on the reform of the motor vehicle tax for passenger cars should align the tax rate more closely to the CO2-emissions of the respective vehicle.
From 2021 to the end of 2026 the commuter allowance will be increased to 35 ct/km for commuting distances above 21 kilometres, thus partly counteracting higher fuel prices due to the CO2-pricing scheme.
What happens next?
New regulations or at least legal reforms are required for implementing the climate package. Other parties, especially the Greens, will certainly demand changes.
It remains to be seen if the current proposals are rather the lower bound for action towards climate protection and energy system transformation for the next ten years. Hopefully, the German government does not rule out proposals for changes from the outset. Anything else would be negligent in view of the German CO2-reduction targets until 2030 and 2050. Moreover, insufficient action will not be an argument for the generations growing up with and being affected by climate change.
Simon Göss is an independent energy market consultant