Claudia Kemfert talks to Kacper Szulecki about the German energy turnaround

Kacper Szulecki: You recently published a book under the powerful title “The fight for electricity” – Already in the first chapter you quote the thesis that the German energy transformation, or Energiewende, is not achievable by 2022. That is the date that the Merkel government has set for the phase-out of the last nuclear plant. Is that too much of an ambitious plan?

Claudia Kemfert: The Energiewende is more than just the nuclear phase out. We have four decades of radical energy policy change ahead of us, but the direction has to be decided now. The opponents of energy transformation argue that it is not achievable in this relatively short period, that the nuclear phase out will cause electricity supply shortages. However, by 2022, when the last seven nuclear power plants in Germany will be shut down, there will be enough renewable energy and power from coal and gas to replace nuclear. Nobody expects the final transition to renewable energy by then. For that we have time until 2050.

What does the German society think about that?

Germans want to phase out nuclear energy and to increase the share of renewables, however, nowadays; the public acceptance of the Energiewende appears to be dwindling.  Skepticism and fear are increasing, stoked by various myths: for example that the Energiewende is too costly, or that it is bad for the German economy. These myths prey upon many peoples’ fears of shifting from the established order to a new one. Take for example the often repeated thesis that energy prices in Germany are going up just because of the energy turnaround, and that the Energiewende is terribly expensive.  In reality there are many factors influencing the rising prices. But the Energiewende opponents place it all squarely on the incentives stipulated in the Renewable Energy Act (EEG).

And so  is it not true that the Energiewende is costly?

Energy in general is costly. Skeptics claim that 100 billion euro will be spent on renewable energy support, which seems like a lot. But you have to know that Germany buys 90 billion euro worth of fossil fuels each year. That puts the Energiewende in a realistic perspective. In fact, the cost of renewable energy is rather relatively small for the average household, about 1 percent of consumption expenditures. The cost of electricity is between 3 and 5 percent. That is several times less than we spend on mobility or heating. At the same time, RES are causing the reduction of wholesale electricity prices. Big industry is benefitting from that, it buys ever cheaper energy on the market. Fossil fuel prices are constantly rising – and they will keep rising. In the long run, RES are cheaper than fossil fuels. Germans are thus making a smart investment for the future.

What about the accusations that the investment is carried out without the consent of the key stakeholders – the citizens?

The claim that the Energiewende is an example of a planned economy and has replaced the forces of the free market is yet another myth based on an understatement. As if the past energy market was free! Nuclear energy and fossil fuels have long been subsidized but the consumer never sees it tacked onto their energy bill the way it is with renewables. That as other myths – are simply not true. Behind these arguments there are concrete economic interests of different entities. It’s a heterogeneous group including some of the utilities, companies with coal-powered plants, energy-intensive industries that fear high investments in energy efficiency and conservative ideologues who think that everything “green” is bad.

What do you think will be the result of the energy transformation for the future of Germany?

Potentially, we have here a lot of positive economic effects; a “green economy” means investment in innovative technologies. Fossil fuels are finite and prices will rise, and all the countries in the world will need to face that challenge. Of course – the lower the energy consumption, the lower the costs, that is why energy efficiency of an innovative economy is a very important competiveness factor. What is more, in Germany approximately 400 000 new jobs have been created by the growing renewable energy sector alone. In Europe, it was some 1,200, 000 by the end of 2011. This could be an answer to the current European crisis.

And yet the energy transformation has a very significant environmental component. It was proposed as the German input to the policy of mitigating climate change. Meanwhile, CO₂ emissions in Germany have increased since last year. 

The emissions have risen, because the share of coal fired power plants rose after shutting down some of the nuclear plants. Furthermore, emissions from transportation and heating in the housing sector have not declined enough to overcompensate rising emissions in the energy sector.

Could such a negative environmental effect not have been anticipated?

Instead of coal plants we need low-emission gas fired combined heat and power plants (CHP) that can be quickly started when they are needed, and can be better combined with renewables. They should be substituting coal plants. But the problem is that they are just not lucrative at the moment. The price of gas in Germany is too high, and the price of CO₂ emissions – too low. The prices of allowances in the EU Emissions Trading Scheme (ETS) are too low. There was an administrative over the allocation of emissions permits, which took place when the system was set up. The supply of permits increases further through international UN mechanisms like CDM. If the European countries will not be able to reanimate the emissions trading system by backloading a large part of the excess permits, emissions trading system will die further.

What you just said on Poland would sound like a heresy. Backloading is almost unanimously criticized. For some Polish experts it is like aspirin for a dying person. But for a large majority the calculation is simple: higher permit prices mean higher energy prices. And that means the loss of competitiveness in the industry. Does a higher CO2 price have to necessarily translate into increasing energy prices and the industry moving out of Europe?

No. It depends how high the price is and whether it is transferred to energy prices. In a competitive market, higher CO₂ prices should bring investment into climate friendly technologies, so that CO₂ emissions are avoided. The flight of the industry, so called carbon leakage, might occur with very high permit prices above the level of €60 per ton of CO₂ and if there are no exemptions for affected companies. We are far from that. Even with the backloading of surplus certificates the price would go up by a few euros (in May’13 the price oscillated between €3 and €4 – ed.). The price effects would be low, as the certificates are not set aside but only removed temporarily. If the European CO₂ prices will stick to be that low, Germany (and also other EU countries) might think to establish a CO₂ tax in order to provide the right signals for the energy transformation. UK started with a price floor for CO₂. That is not preferable, but it could happen that others will follow suit.

What are the problems that the German energy policy faces? Current and future?

Electricity supply transition – that is a better description of what has actually happened. We have a growing supply of renewably generated electricity that is impressive, but nothing else much. Take, for example, investment into a new and better grid or advances in storage capacity – they are still insufficient. Completely ignored is the demand side that is energy efficiency in the industry, mobility and buildings. The Energiewende has gotten off to a good start, but now it’s faltering and in danger of being stopped entirely. The boom in renewables is a success but with caveats. We now see further investment into coal-fired power plants and this is not compatible with a stable energy transition. If we continue this way and do not, for example, correct the price of CO₂ we will effectively be substituting nuclear power for coal. This is harmful to the climate and undermines the effort to reduce GHG emissions, where Germany is clearly failing.

Is Poland in some way particularly important for Germany’s energy policy? It seems to be walking along a very different path right now.

Poland is important to reach the overall European goals, such as to increase the share of renewable energy. Germany, like Poland, sees the share of coal power increasing, which in the long run cannot be compatible with RES expansion. If, however, Germany can show that a sustainable energy system is feasible in an industrialized country and costs will decline, other nations will follow suit. Poland, sooner or later, will also increase the share of renewable energy and gas fired power plants. As costs for renewable energy will further decline, also you will apply it more. All European countries have committed to a European roadmap to increase the share by renewable energy by 2050. It is important that all European countries find a joined way to reach that goal. However, energy policy will be national also in the future. Each country needs to establish its own way to reach the target. In the future, however, we need a more unified European market with better integrated electricity markets.

* Claudia Kemfert – professor of economics, she heads the Energy, Transportation and Environment department at the German Institute for Economic Research (DIW). She is also Professor of Energy Economics and Sustainability at the Hertie School of Governance in Berlin. 

** Kacper Szulecki – political scientist and sociologist, Dahrendorf Postdoctoral Fellow at the Hertie School of Governance and guest researcher at the Dept. of Climate Policy of the German Institute for Economic Research (DIW).

„Kultura Liberalna” nr 229 (22/2013) May 28th 2013