Germany’s vision for 2030 in climate and energy legislation

The new German “traffic-light” coalition, between the “red” social-democrats (SPD), the “yellow” liberal-democrats (FDP) and the Green Party (Bündnis 90/Die Grünen), have presented their coalition agreement. Regarding climate and energy legislation, the coalition agreement, under a headline that can be translated as “Daring to make a greater advance” (available in German here) touches on a vast range of topics; often without going into further detail, though.

What’s the starting point?

With regard to climate goals, the partners do not raise the bar, but stick to the goals already agreed upon, i.e. the 1.5-degree path of the Paris agreement and a 65% reduction in greenhouse gas emissions by 2030 compared to 1990 as stipulated in the German Climate Protection Act (KSG).

They support the measures the European Commission proposed in its Fit for 55-Package and confirm Germany’s final exit from nuclear power generation.

A vision for 2030

Albeit sticking to existing climate goals, the parties acknowledge that Germany is currently not doing enough to meet them. Also, in view of the latest judgment of the Federal Constitutional Court which found that decisions of the law-maker that place the burden of emission savings mostly on the shoulders of the younger generation violate the constitution, the coalition treaty develops a vision for the year 2030 by which:

• power generation from coal will “ideally” come to an end – instead of 2038 as under the current Coal Exit Act;
• Germany will become a leading market for hydrogen technologies with a hydrogen production capacity of 10 GW (current plans: 5 GW);
• there will be 15 million fully electric passenger vehicles driving on German streets (current plans: 7 to 10 million);
• there will 1 million charging points publicly available in Germany (starting from 44.000 as of 2021);
• 50% of the heat is produced climate neutrally and;
• 75% of the rail network will be electrified (2021: 61%).

The coalition parties expect that gross electricity consumption in 2030 will reach 680 to 750 TWh, 80% of which shall be covered by renewable energies:

• with 200 GW installed capacity solar energy to cover the lion’s share;
• offshore wind is to provide 30 GW capacity (40 GW by 2035 and 70 GW by 2045); leaving
• a share for onshore wind of 98-124 GW (as calculated by the German energy industry association bdew).

How do we get there?

In order to bring emissions down and scale renewable and hydrogen production up, there is need for space to build additional generation and grid capacity, for incentives for investors and, last but not least, for the removal of regulatory barriers. The coalition parties propose to tackle these – by far not new – needs by the following measures:

Climate-check for new legislation

When drafting new legislation, ministries should include their considerations on climate impacts and compatibility with national climate targets in the explanatory memorandum of the draft legislation (so-called climate check).

More space and less support for renewables

To free up more space for renewable energy generation, the parties want to

• place “solar on every roof” making the installation of solar panels obligatory for businesses and desirable for private parties;
• secure 2% of the country’s territory for onshore wind. This includes a ban on selling federally owned land owned land but to reserve it for solar or wind installations (or for biodiversity purposes);
• introduce a mandatory participation of municipalities in the revenues of all new solar and wind generation on their territory. For existing installations such payments shall be introduced on a voluntary basis;
• allocate more space in the foreign economic zone for offshore wind.

The parties also plan to phase out financial support for renewable electricity with the completion of the coal phase-out. Generators of renewable electricity shall use long-term power purchase agreements (PPA) and certificates of origin to refinance their assets.

Hydrogen and until 2045: natural gas

Germany plans to become the leading market for hydrogen technologies. The parties want to provide financial support for hydrogen grid infrastructure and for the domestic production of green hydrogen. However, given the limited availability of domestic renewable electricity the regulation shall be “open to all technologies” (i.e. hydrogen of other colors than green) and acknowledge the need of hydrogen imports to foster the market ramp-up of hydrogen.

Besides, the parties expect that new natural gas fired power plants need to be built in locations where coal power plants exit the market and plans to support them via an “innovation program”. However, all new gas plants should be built “hydrogen-ready” in order to avoid lock-in effects. After 2045, existing plants and grids should no longer use or transport natural gas. The parties plan to enter a dialogue with the companies on how to grant operating licenses for energy infrastructure in such a way that operations can continue beyond 2045 using only non-fossil fuels, without triggering an investment freeze, stranded investments or compensation claims.

Besides, there shall be no new permits for offshore oil and gas drilling.

Better and faster planning and permitting

Planning and permitting procedures can be lengthy and are often hampered by resident’s objections and/or concern of nature conservation and species protection. Until climate neutrality is achieved the coalition wants to strengthen the position of renewable generation in relation to other legally protected interests. For example, the agreement explicitly states that the need for clean energy should take precedence over wildlife preservation concerns until climate neutrality is achieved. In addition, in order to avoid objections from interested parties it shall be ensured that the public will be able to participate in the planning procedures “at the earliest point in time”.

With regard to grid expansion, the parties are considering introducing financial incentives for municipalities.

Securing private investment

For the years 2022 and 2023 the parties plan to introduce an investment premium for investments in climate protection or digital economic goods. This shall take the form of a “super-depreciation” but has not been detailed further by the parties.

Regarding investments in grid infrastructure the parties acknowledge that these need to be “attractive” – again without going into further detail.

Investments may be backed-up by the national promotional bank KfW as a co-provider of venture capital which is to act more strongly as an innovation and investment agency.

Carbon pricing

The parties agree that companies should in Germany always have to pay at least 60 EUR for a ton of CO2 under the European emission trading system (EU-ETS). If the market price should fall below that mark the parties agree to introduce counter measures, be it by introducing a minimum price or by deleting a certain amount of certificates. The parties plan to review the German CO2-pricing system for fuels (national ETS) to prepare for a smooth transition to the unionwide fuel pricing system proposed by the European Commission as part of its Fit for 55-package in July.

Review of energy price components

As of 2023 the parties want to finance the promotion of renewable electricity from public funds (using inter alia the income from the national ETS) and abolish the renewables surcharge of 6.5 ct./kWh (2021; 2022: 3.7 ct./kWh) to be paid by all consumers of electricity (so-called EEG-Umlage). In addition, the parties agree to review the system of energy taxes and its exceptions and benefits with the aim of removing tax benefits connected to electricity consumption. There is no reference in the agreement to review further surcharges on the electricity price (e.g. for co-generation or disconnectable loads). As regards grid fees, the parties state that they will promote a reform that will “fairly distribute the costs for integrating renewable energies”.

What else?

The coalition agreement briefly touches on quite a few other aspects which the new government wants to further examine and accelerate. This includes assessing technology-neutral capacity mechanisms and flexibilities, “technical negative emissions” (i.e. CCUS), bioenergy, accelerating the roll-out of smart meters and introducing a stand-alone definition of electricity storage assets.

What’s next?

In 2022, the coalition parties plan to take the first steps to reach their vision for 2030 including:

• a reform of the renewable energies act (EEG), the climate protection act (KSG) and the Building Energy Act (GEG);
• a review of the coal exit date;
• an “immediate action program” for climate protection;  
• an update of the national hydrogen strategy; and
• establishing a platform “a climate neutral electricity system” to develop a new electricity market design.

Will this be easy?

As the coalition treaty contains many vague passages it leaves room for discussions when its ambitious goals are to be moulded into concrete legislation. Streamlining the different mind-sets of the traffic-light parties to reach an effective set of rules taking into account how interdependent and complex the energy system has become is not be an easy task. The concrete measures will need to be guided not least by the overarching EU electricity and gas market design as well as by state aid law. Also, in regard to planning and permitting procedures the new government will have to carefully assess the leeway it has in accelerating energy projects in regard to EU rules protecting citizen’s participation and nature preservation.

Regarding other aspects, as the reform of grid fees the new government will have to comply to a recent judgment of the ECJ holding that the national regulators, not the legislators, are tasked with determining the methods of grid access and grid fees. The governments’ influence in this regard is therefore limited.

Happy to discuss!

Interested to know more about how the politics of the new German government might impact your business? Our lawyers specializing in energy law and environmental law are happy to discuss the different proposals and their possible consequences with you.

For other aspects of the German coalition treaty or the German version of this text please visit our dedicated website (partly in German).