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Germany: Law on Phasing-Out Coal-Powered Energy by 2038 Enters into Force

(Aug. 31, 2020) On August 14, 2020, the Act to Reduce and End Coal-Powered Energy and Amend Other Laws (Coal Phase-Out Act) entered into force in Germany. The Coal Phase-Out Act aims to gradually reduce and eventually end the use of coal-powered energy in Germany by 2038 in order to “reduce emissions and provide the public with a safe, a cost-effective, an efficient, and a climate-compatible energy supply.” No new coal-fired plants may start operating after August 14, 2020, with the exception of those that received a license to operate before January 29, 2020. The act offers financial compensation to operators of coal-fired plants. In addition, it amends the German Renewable Energy Sources Act to codify the goal to raise the percentage of renewables to 65% by 2030.

In addition, on August 14, 2020, the Structural Support for Coal Regions Act entered into force, providing lignite-coal regions with financial aid of up to 14 billion euros (€) (about US$11.86 billion) for particularly important investments until 2038 to deal with structural changes and to secure employment. (Structural Support for Coal Regions Act § 1, paras. 1, 2.) Hard-coal regions will receive financial aid of up to €1.09 billion (about US$923 million). (§ 11.) Furthermore, the act provides up to €26 billion (about US$22.02 billion) for further support measures, such as highway and rail infrastructure improvement or expansion and creation of up to 5,000 additional jobs in federal agencies in the coal regions. (§ 27, para. 2.)

Content of the Coal Phase-Out Act

Phase-Out in Three Stages

Coal-powered energy is to be gradually phased-out. The Coal Phase-Out Act mandates that by 2022, the power generated from both anthracite (hard coal) and lignite (brown coal) must be reduced to around 15 gigawatts (GW) each. By 2030, the output is further reduced to 8 GW for hard coal and to 9 GW for lignite. Finally, by 2038 at the latest, the use of coal-fired plants must cease completely. (Coal Phase-Out Act § 2, para. 2, § 4.) The act also mandates reviews of the phase-out schedule in 2026, 2029, and 2032, respectively, to decide whether a complete exit may be achieved by 2035. (§§ 47, 56.)

Voluntary and Mandatory Reductions

The reduction of hard-coal power is to be achieved first by voluntary reductions offered by the plant operators and, after 2027, by legally mandating the reduction. (§ 5.) The act sets up an auction system where hard-coal operators may offer capacity volume reductions and receive financial compensation in return. The first auction will take place on September 1, 2020. (§ 10, para. 2.) For that year, the maximum compensation is €165,000 (about US$194,000) per megawatt net nominal capacity. The financial compensation available decreases each year to offer an incentive to decommission a plant earlier. After 2027, no financial compensation will be paid to the plant operators. (§ 19.) The German Federal Network Agency will determine a maximum tender volume for each auction and use a procedure set out in the act in case there are too many bids. (§ 18.) For the years after 2027, there will be forced shutdowns of plants.

The act sets out a different process for the decommissioning of lignite-fired plants. For each plant, a specific end date and the compensation the plant operators will receive is determined. (§§ 40, 44 in conjunction with annex 2.) The two operators will receive €2.6 billion (about US$3.1 billion) and €1.75 billion (about US$2.06 billion), respectively. (§44, para. 1.)

Ban on New Coal Plants

The act generally bans the starting of new coal-fired plants after August 14, 2020, the date the act entered into force. (§ 53.) However, an exception is made for those that received a license to operate before January 29, 2020. This exception was inserted to ensure that the modern anthracite-fired Datteln IV plant would be allowed to start operating. The federal government argued that “any subsequent decision to ban the start-up would have entailed paying massive compensation. … [I]t makes sense to decommission the older, less efficient anthracite-powered stations first, rather than not starting up the extremely modern Datteln IV power station and paying compensation on top.”

Designation of Garzweiler II Plant as Essential

The act further designates the open-pit lignite-fired Garzweiler II plant in the German state of North Rhine-Westphalia as “essential” regarding energy policy and energy efficiency and ensuring a secure and reliable energy supply. (§ 48.) This designation means that the coal plant will be allowed to operate until 2038 and that planned relocations of villages will take place.

Compensation for Workers

Coal-plant workers age 58 and older who lose their jobs when plants are decommissioned will receive monetary compensation for a maximum of five years until they are eligible for their pension. Pension reductions due to early retirement immediately following the end of the compensation payment can be made up for by direct payments to the statutory pension insurance. (§ 57.)

Reactions

The Coal Phase-Out Act has been criticized by the opposition parties in parliament and environmental groups as delaying the necessary exit from coal energy and paying too much compensation to coal-plant operators. Furthermore, in the opinion of Annalena Baerbock from the party Alliance 90/The Greens, the act will make it more difficult for future governments to fulfill their commitments under the Paris Climate Agreement. Lastly, the exception carved out for the anthracite-fired Datteln 4 plant, which started operating in the summer of 2020, and the designation of the Garzweiler II coal plant as “essential for energy purposes” have been heavily criticized as counterproductive and going against the recommendations of the “Coal Commission.”

The coalition parties, on the other hand, have stated that the agreed-on coal phase-out is historically unique because the agreement makes it possible to absorb the structural changes by creating new jobs before the old ones are eliminated. Moreover, the Social Democratic Party of Germany has emphasized that the Coal Phase-Out Act for the first time codifies the goal to raise the percentage of renewables to 65% by 2030. In the view of the minister of economy, economic strength goes hand in hand with environmental compatibility, and the Coal Phase-Out Act makes Germany the only industrialized country to exit both coal and nuclear energy.

Preliminary Injunction

On August 18, 2020, the Federal Constitutional Court denied an application for a preliminary injunction submitted by a coal plant operator asking for more compensation for the decommissioning of hard-coal plants. The court stated that the coal plant operator had no standing because the plant was 85.9% owned by municipalities and could therefore not invoke constitutional rights.