Energy policy in Germany: Big problems in Europe’s powerhouse
The coalition agreement between the German Social Democrats (SPD) and the Christian Democrats (CDU) has seen SPD leader Sigmar Gabriel become Minister for Economy and Energy in the Merkel cabinet. In a country with spiralling energy costs, he faces a daunting challenge to balance industrial competitiveness, social justice, green goals and energy security
The German elections in the autumn of last year were followed by the formation of a third grand coalition between Christian Democrats and the social democrats (SPD) in the history of post-war Germany. During the three months that followed the SPD were enjoying the rather rare experience of unusually high popularity ratings for their ministers. They were riding high in the opinion polls, outperforming their Christian Democratic counterparts.
But the popularity of some of their leading figures does not suggest that a social democratic revival is under way after the bitterly disappointing result in last year’s elections. The latest opinion polls for the party, in contrast to some of its ministerial figures, are still dismal. The SPD is hovering around 25%, well below the minimum requirement of the 30-35% that they could not so long rightly expect – and would need to form a coalition government in which they are not the junior partner but the leading party.
The reality is that Germany’s centre-left has still not found or developed a strategy that might stop the decline that is less obvious now that the SPD is in power. There is still a battle within the soul of the party between those activists who want the party to move quickly into its “comfort zone” and distance itself from the tough reforms of welfare and the job market that were brought in under Gerhard Schröders “Neue Mitte”.
This problem will only grow as Germany’s position as a much admired European powerhouse begins to slow-down. In London, where one was traditionally quite worried about too strong a Germany, one now can hear voices predicting that Germany’s relatively strong economic position (it was never as good as was suggested) will have disappeared in a few years’ time. The coalition agreement they argue, with a certain justification, would pull Germany away from policies that a modern, globally competitive economy needs more than ever and that the red-green government under Gerhard Schröder provided with its Agenda 2010.
But the coming decline will be caused foremost by the pursuit of an energy and climate change policy that many foreign observers and experts saw from the beginning as a high risk experiment that would go wrong. They were right. The Energiewende is beginning already to damage Germany’s position as an industrial powerhouse while increasing the already significant burden for the German population. And it has increased Germany’s dependency on Putin’s Russia that delivers approximately 40% of the gas Germany consumes.
The energy landscape in Germany
Sigmar Gabriel, the SPD leader in charge of the Economy and Energy portfolio, is without doubt the most important minister in the cabinet of Angela Merkel but he is facing the most difficult task too. His job is to secure the competitiveness of Germany and its industries and he has to reform the German energy revolution, the “Energiewende”, which cannot be done without upsetting what the scientist James Lovelock in his book “The vanishing face of Gaia - a final warning” called the “green – industrial complex” that has established itself over the last twenty or so years and is determined to defend its vested interests, not least the enormous subsidies for wind turbines. Lovelock predicted then that "Europe’s massive use of wind for baseload electricity will be remembered as one of the great industrial follies of the twenty first century".
Furthermore, Sigmar Gabriel will have to find a way to explain how the architects of the Energiewende came to ignore its flawed design based on miscalculations, lack of realism and wishful thinking. This uncomfortable task might be slightly easier because the Energiewende has many political parents, Greens, Social Democrats and Christian Democrats. One especially disastrous element of the Energiewende, the rushed nuclear exit after Fukushima, was furthermore the responsibility of Merkel’s coalition with the Liberals.
Business as usual is no longer an option. Without drastic changes the Energiewende will be even more threatening for Germany’s industrial base. German exports would have been €15bn higher last year if its industry had not paid a premium for electricity compared with international competitors, according to a recent analysis by the Energy Consultancy IHS.
Germany’s manufacturing suffered already €52bn in net export losses for the six-year period from 2008 to 2013. The figure was calculated by linking changes in the net volume of German manufacturing exports to changes in energy costs, using an economic model that accounted for other variables such as exchange rates. Almost 60 per cent of the total loss (or €30bn) came in energy-intensive industries: paper, chemicals and pharmaceuticals, non-metallic mineral products and basic metals.
Smaller companies were disproportionately affected. Unlike heavy energy users such as BASF and Thyssen/Krupp, small companies are not eligible for exemptions from the energy bill surcharges that cover the costs of the move to clean energy. Even more worrying for Germany is a clear trend for investment to go abroad. IHS found that direct investment abroad has accelerated at the expense of domestic investment and the cost of energy was the most important driver of this shift.
The social costs of high energy prices
Equally serious are the social consequences of the Energiewende and they should be of special concern for a party that defines itself as defender of the interest of the “many not the few”, i.e. the lower income groups and poorer sections of society. It is the majority of the German population that is facing a growing burden because of the country’s energy policy that, if it continues, might over time become a trigger for social unrest.
Germany’s electricity prices are already the highest in Europe, 40 to 50% higher than the EU average and twice as much as in the US. The government in Berlin conceded recently that already 6.9 million households live in energy poverty defined as spending more than 10 per cent of their income on energy. This is largely a result of the surcharge for renewable energy. Between 2000 and 2013, electricity prices for households have increased 80 per cent in real terms, according to the OECD and the IEA, the International Energy Agency. But this is not the end of it.
The overall sum that consumers have to pay through their energy bills will rise from 25 Billion Euro this year to 30 Billion Euro next year. And so on. The problem will get worse in the years ahead because of the guaranteed feed in tariffs for wind and solar and when even more of the expensive and intermittent electricity supply will come on stream. It is not without bitter irony that social democrats seem to be content with an energy policy that profits the better off, the house- and landowners, who have roofs and land for turbines and solar panels.
The arguments against the extensive use of these highly inefficient forms of energy are well established. Wind and solar photo voltaic are intermittent and need conventional backup; the higher the percentage of electricity created by wind turbines and solar panels the more expensive it becomes because it needs conventional back up by fossil fuel power stations. When not running all the time they are even more expensive, the price quickly spirals out of control, especially when one adds the cost of subsidising the energy intensive German industries, in order to prevent them from leaving the country - an expensive policy that the European Commission wants to stop.
The utopian dream of an economy powered by renewables is more and more turning into a nightmare. In his recently published book “Klare Worte”, which means “blunt words”, ex-Chancellor Gerhard Schröder, under whom the “green energy revolution” started, is now calling for a revision of this policy; he warns of more damaging and unachievable targets for renewable energy and for CO2 reduction by the EU Commission and advocates a longer life for Germany’s remaining nuclear power stations that according to the official time table will have to shut down in 2022, thus increasing the fear of blackouts in Germany.
But the present coalition government, despite its intention to lower the burden for consumers and industries, is still determined to double the amount of renewables till 2030. So far it does not show any willingness to consider prolonging the life of the remaining nuclear reactors, despite now facing the Ukrainian crisis that should have alerted Berlin and other European capitals to the risk of diminished energy security and growing dependency on Putin’s Russia.
The Europeanisation of Energiewende
In light of this crisis one reaction in Germany is to demand the “Europeanisation” of the Energiewende. Even The Economist, after a grim analysis of the situation in Germany, suggests that Germany should go for “a European rather than a national vision for the Energiewende”.
But this suggestion is equally flawed. Both, the EU and Germany, need major changes in their energy strategy. Already European unity is fading. There seems less and less common ground among EU members about which way to go. Some countries will join the shale gas revolution, among them the UK and Poland. Others, like Germany, are dead against it. Already the attempt to set new, even more demanding EU - targets for renewables has been postponed, because of a lack of unity.
The underlying principles of European energy policy were until now in essence similar to Germany’s goals. Apart from its rather neurotic reaction to Fukushima and the subsequent nuclear exit, Germany shared the overall analysis with the Commission in Brussels and its European partners, it only moved faster than other nations, spent (or wasted) more money on old fashioned renewable technologies and thus is now in deeper trouble than for instance Britain, that so far spent only a tenth of the sum Germany invested in its “green revolution”.
The original strategy of the EU and its member states was based on major miscalculations: the first one was the assumption that fossil fuels would become scarce and ever more expensive. By switching decisively into renewables, so the thinking, one would not only reduce CO 2 emissions but could with some justification promise consumers in a few years along the line lower electricity prices based on now competitive renewables. As a consequence of this flawed analysis huge financial resources were poured into old fashioned and inefficient existing renewable technologies.
The reality today: fossil fuel is more abundant than ever before, the shale gas revolution in the US is changing the whole energy scenario, more gas and oil is available than ever before while the price for both is falling.
The fallacy of knowing the future
“The fallacy of knowing the future”, says Dieter Helm, professor of energy at Oxford University, “is all too seductive, especially when it is convenient for picking the politically favoured winners”. Shale oil and gas are “not temporary aberrations, but permanent facts on the ground”.
Indeed, the US will not only become energy independent over the next decade but is attracting more energy intensive industries to its shores while energy intensive investment in Europe has all but dried up. And yet, in contrast to Germany, the US has been reducing its CO2 emissions over the last few years.
Germany, blocked in by its own policy, had to build coal fired power stations including lignite, the dirtiest form of all, to prevent the lights from going out; it produces today more CO2 emissions than before and the conflict about the building of thousands of kilometres of “motorways of electricity” from the north to the south will not only destroy beautiful landscapes but is leading to bitter conflicts in German society.
Another illusion proved to be the European conviction that “climate unilateralism” was the right strategy: we will set an example, set a tight timetable, go for binding cuts in greenhouse gas emissions and for wind and solar energy, and the world will follow, imitate our policies and the global deal will be sealed in a binding international agreement.
It should have been clear from the outset that this was a naive approach, reminiscent of other unilateral intentions in the past. Of course nobody was willing to follow.
But now this sort of European climate unilateralism is untenable. It undermines the competitiveness of a continent whose politicians, regardless if right or left, have to deal with the huge structural problem that Europe has 50% of all social spending, 25% of the economic output and seven percent of the population of the world. The failure in 2009 at the climate summit in Copenhagen should have made clear that any hope to achieve an international binding agreement was “pie in the sky” - thinking. The recent climate summit in Bonn delivered further evidence for that and was not even reported in the main stream media who, like their audiences, seem to have lost interest in the climate topic.
Of course pressure is still excerpted in certain quarters on ministers like Sigmar Gabriel to push further for renewables and unleash job creation through a new green Keynesianism. In reality more jobs have been destroyed than created everywhere in Europe, from Germany to Spain and Britain. A giant like Siemens got into trouble and had to write of more than a billion Euros because its CEO embraced the green revolution all too naively and uncritically.
Detlef Wetzel, leader of one of the most powerful Trade Unions in Germany, the IG Metall, the Union of the Metal workers, complained bitterly that 200,000 jobs in his sector were “in danger of getting lost because of the Energiewende”.
Germany is not alone
Germany is not alone in Europe. The UK and other EU countries are facing similar problems in regards to the price of energy and the competitiveness of industries. But for Germany it is more difficult to turn around and admit mistakes. So much money has been spent, so much prestige and pride is at stake, and, in contrast to the more pragmatic British and the less easily frightened French, green convictions are much more deeply embedded in institutions, in culture, in the media and in politics – and Germany is a country with a strong, long established tradition of anti-modernism, nature worship and suspicion of technological and scientific progress.
During the heyday of climate fears in the last decade, centre-left politicians in Britain and Germany were united in the belief that climate change would be the new mass mobilising topic that would help save their parties. A more likely outcome is that this strategy will neither save the centre-left nor will it help to prevent climate change. The fate of the SPD may serve as an interesting lesson for other centre left parties. It is telling that according to the latest survey only 24% of Germans feel confident about their countries energy policy while 73 percent are dissatisfied and are ill at ease. This may be a warning that Sigmar Gabriel should heed. It is unlikely that most of those 73% demand even more wind turbines that blight so many landscapes of their country already without delivering the life blood on which an industrial nation depends.
Jürgen Krönig is a broadcaster, author and commentator for the German weekly Die Zeit and various other publications in Germany, Switzerland and Britain
A contribution to State of the Left - Policy Network's monthly insight bulletin that reports from across the world of social democratic politics