DEcarbonization in Germany 2030

The proposals put forward on Friday, 20 September, cover the entire spectrum of tools, from the emissions trading scheme for buildings and transport, to the proposal to prohibit the installation of heating oil stoves, to the idea of setting up an external expert committee to monitor the achievement of targets in each sector. With an initial cost of €50 billion, the programme aims to achieve the emission reduction targets by 2030, thereby overshadowing Germany's failure to meet its 2020 target (40% reduction was planned) and rebuilding Germany's leadership in the global climate negotiations.  

1. The most anticipated element of the package is carbon pricing in the area of buildings and transport. Until the last moment, discussions were held on how to internalise CO2 costs (i.e. how to value them in the spirit of the 'polluter pays' principle). The debate focused on two solutions: tax or the emissions trading system. Ultimately, the second concept won. However, it has many opponents who argue that a CO2 tax would work faster and more effectively and that the price in the trading system would have to reach up to 100 euros in order to influence the behaviour of consumers and companies. 
2. Meanwhile, the internalisation of CO2 is to be gradual. In 2021, CO2 for these sectors is supposed to cost 10 euro/tonne, and in the following years it will gradually increase to 35 euro in 2025. It is only after 2025 that the price of allowances is to be shaped on the market, but at a level not lower than 35 and not higher than 60 euro/tonne. 
3. For the time being, this mechanism will be national and parallel to the European Emissions Trading System covering energy and industry. However, Germany wants to test the interest of the Member States and, if there is a "coalition of stakeholders", it will eventually be extended to the whole Union. In the longer term, the introduction of buildings and transport into the ETS is possible.  
4. At the same time, the German government wants all revenues from the new system to be used for climate protection policy or returned to the citizens, e.g. in the form of reductions. Initially, this will mean, among other things, a reduction in fees for supporting renewable energy, which, however, will not be large - 0,25 cents per kWh in 2021. This could result in small savings of €8 per year.  
5. Important declarations have also been made in relation to the ETS. Germany agreed on the idea of setting a minimum price for CO2 emissions, which is a breakthrough, because there has been no consensus so far. However, the minimum is to be at a "moderate" level. 
6. A significant element of the proposal is the setting of sectoral emission reduction targets, the achievement of which is to be monitored by independent experts and, if necessary, revised by the relevant ministers:

• In the power sector, emissions are expected to fall to 175-183 million tonnes of CO2 in 2030. To achieve this, in addition to participating in the ETS, Germany intends to close coal-fired power plants by 2038, as agreed by the Commission for Growth, Structural Change and Employment. Legislation with the coal exit path, however, is not part of this package - it is expected to be presented in November this year. This will mean a reduction in coal capacity to 17 GW in 2030, while renewable sources should then produce as much as 65% of electricity.  However, there is a problem with that - for almost a year and a half there has been no increase in new onshore wind capacity. Therefore, new initiatives should also be expected in terms of support for renewable energy sources. For the time being, the package announces the abolition of upper limits for the support of photovoltaic sources (currently 52 GW) and the increase of the target for offshore wind farms by another 5 GW (to 20 GW in 2030). Germany also wants to promote cogeneration, storage and sector coupling. 
• For buildings, the 2030 target is to reduce CO2 emissions to 72 million tonnes (from the current 120 million tonnes). The main instruments in this area will concern support for efficiency or prohibition of installing heating oil furnaces after 2025. Additionally, it is planned to cover up to 40% of costs for the cleanest forms of heat generation.  
• The transport sector must reduce emissions by 40-42% by 2030. In addition, agriculture and forestry will be able to emit no more than 58-61 million tonnes of CO2. A major challenge awaits industry, which should emit as much as half as it did in 1990 in 2030. (i.e. not more than 140-143 million tonnes).  

The new national climate package in Germany alone is judged to be insufficiently concrete and ambitious. However, it ends a certain stage of the discussion on tools for further decarbonisation. Although it mostly refers to national measures, it will also have an impact on the EU level. First of all, Germany confirms the goal of climate neutrality in 2050. To achieve this, as they show, greater ambitions for 2030 are necessary. Their declared level of emission reduction - 55% - is higher than the current EU commitment (40%), but coincides with the direction of discussions in the EU. Ursula von der Leyen announced that the European Commission will present proposals to increase it to at least 50% (and optionally to 55%). A communication on this issue should be expected in November next year, and its essential part will be proposals for changes in legislative tools. That is why we are facing a serious discussion in the EU about the reform of the ETS system - establishing a minimum price for CO2 and extending the system to other sectors. Until now, EU action has focused on the electricity sector, leaving aside emissions from transport, buildings and agriculture. This is changing now, as the new President's declarations show. The opportunity for this could be the revision of the ETS Directive, scheduled for 2023. 

Germany has imposed the pace of discussion on climate ambitions. Certainly not everything will succeed, but it is worth appreciating the courage to set goals, the culture of political discourse and openness to compromise. It is high time for Poland to define our approach to the necessary reforms. 

Author: Dr. Aleksandra Gawlikowska-Fyk
Date of publication: 24 September 2019