China, India, Japan and South Korea are the four Asian countries that have traditionally been the engines of coal demand in Asia. With China, South Korea and Japan declaring their goal of net zero emissions, demand for coal from India and other smaller Asian countries will not sufficiently close the deficit. This means that coal consumption in Asia has at best less than 4 years before demand begins to peak and decline.
It is in this context that an earlier energy transition in Germany can help the Asian transition through technological innovation and further deflation of renewable energy costs via economies of scale. The production of electricity from lignite and hard coal in Germany has been halved over the past five years. In 2020, more than 40% of the country’s energy production comes from fossils, with lignite and hard coal contributing 23.8% (2020, Clean Energy Wire).
The decision of the Federal Constitutional Court of April 29 forces the German government to improve the law on climate action. The result is not only stricter climate targets, but also a long overdue debate on appropriate measures for climate neutrality – from higher CO₂ prices to an earlier end of coal power. In April, Germany’s highest court ruled that the country’s climate action needs to be stepped up. Now the government has responded with draft amendments that would make Germany’s climate action law one of the most ambitious in the world. Combined with rising CO prices, it would advance coal phase-out from 2038 to 2030.
The decision of the Federal Constitutional Court of April 29 forces the German government to improve the law on climate action. The result is not only stricter climate targets, but also a long overdue debate on appropriate measures for climate neutrality – from higher CO₂ prices to an earlier end of coal power. After all, one thing is certain: if Germany takes its climate goals seriously, it must phase out coal by 2030, not as planned in 2038. The International Energy Agency, the world’s largest energy institution in the world, recently confirmed this trend for the world context in its new report titled
“Net Zero by 2050”: To comply with the Paris Climate Agreement, OECD countries must stop coal-fired power generation by 2030.
However, Chancellor Angela Merkel has made it clear that she does not intend to change the law on phasing out coal despite the more ambitious climate target. The main reason, however, is probably financial: an earlier shutdown of plants could lead plant operators to demand higher compensation. The German government has contracted to make payments as part of the phase-out negotiations.
For two reasons, Germany’s coal phase-out is expected to be completed by 2030 – even without a formal amendment to the Coal Phase-out Act: high carbon prices and more ambitious climate targets at national and European levels. . First, the price of CO2 allowances under the European Emissions Trading System rose from around 27 euros per tonne of CO2 in January 2020 to more than 50 euros in May 2021. At this price, the coal is becoming the most expensive source of electricity. In addition, renewable energies have been continuously developed for years all over Europe. On the other hand, the share of coal energy in the European Union was reduced by almost half between 2015 and 2020.
It is not yet clear how long the current rise in the price of CO 2 will last. Price speculation is certainly part of the picture. However, the long-term trend is clear: by 2030, despite possible fluctuations, analysts currently expect a price of around 75 to 110 euros per tonne of CO2. Even the most modern and efficient lignite-fired power plants are the losers.
In Brussels, member states recently agreed on a more ambitious climate target of 55% less emissions by 2030 compared to 1990 as part of the European Green Deal. Lawmakers are also reforming the European Emissions Trading System. The volume of emission allowances could be reduced, and heat and transport could be integrated.
Second, a faster phasing out of coal is likely, as the German government must act on its ambitious target for the energy industry. The Climate Action Act places the remaining budget for the energy sector through 2030 at just 108 million tonnes, requiring at least 70 percent of renewable electricity by then. The remaining 30 percent is reserved for waste incineration and a much lower carbon fossil gas.
Germany must therefore implement appropriate measures to ensure a phase-out of coal by 2030, including not only a national carbon price floor to protect the European emissions trading, but also consistent additions. wind and solar capacity. Structural change in lignite regions also needs to be accelerated.
The foundations for a just transition have already been laid: the federal government has made the necessary financial resources available to affected states. With input from the unions, a comprehensive support program has been put in place for the affected coal miners. Unnecessary social hardship should be avoided for all, while young employees will receive further training for other industries. German climate policy must now proactively shape this structural change to accelerate the transformation of coal regions.
[By Philipp Litz, project Manager and Nga Ngo Thuy, Project Advisor International Coal Transition, Agora Energiewende]