Germany Gives Dirtiest Coal Plants Six Years for Phase Out

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A Coal-Fired Power Plant
A coal-fired power plant in Janschwalde, Germany. The government’s coal plans would mean immediate closures of lignite mines and power stations, RWE AG Chief Executive Officer Peter Terium told shareholders on April 23. Photographer: Krisztian Bocsi/Bloomberg

Germany’s main political parties worked out a compromise plan to cut power-industry pollution by handing a six-year lifeline to some of the dirtiest coal-fired plants.

Economy Minister Sigmar Gabriel said 13 percent of power stations burning lignite, a cheap form of coal, would be phased out by 2021 under the program. The government abandoned talks on proposals to impose a climate-change fee that the industry said would have forced mines and plants to close, threatening jobs.

The decision, which must be ratified by Chancellor Angela Merkel’s cabinet this year, boosted the shares of utilities including RWE AG and EON SE. They had been braced for more stringent measures as Germany cuts emissions in time for a United Nations deal on global warming in December.

“We consider this a great relief for RWE as the climate-change fee could have proved far more harmful to the company’s brown coal-exposed power generation portfolio,” Tanja Markloff, an analyst at Commerzbank AG who upgraded RWE to buy Thursday, said in an e-mailed note.

RWE surged as much as 6.4 percent, the most since January, and EON by 3.7 percent, making them among the biggest gainers on Germany’s benchmark DAX index.

Levy Averted

Instead of imposing the levy, Germany will put 2.7 gigawatts of lignite-fired plants into a power-capacity reserve from 2017, and close them after four years. The reserve will enable the plants to operate when supplies are short, although the facilities won’t be allowed to sell power on the market.

That would lead to a reduction in carbon-dioxide emissions of 11 million metric tons a year, the Economy Ministry estimated. The lignite industry agreed to cut an additional 1.5 million tons a year from 2018 in a way that still needs to be negotiated. The previous plan, promoted by Gabriel, would have cut at least 16 million tons of emissions through a levy that was designed to make burning coal less profitable.

Gabriel said measures to boost energy efficiency will save a further 11 million tons of carbon. Total savings of about 22 million tons represent about 2.8 percent of Germany’s annual carbon emissions, according to BP Plc data.

The reserve system will cost an estimated 230 million euros ($255 million) a year, Gabriel said. Either way, utilities can’t afford to cling to coal energy because Germany will have to cut 200 million tons of carbon by 2030, he said. “The real challenge is still ahead of us,” Gabriel told reporters in Berlin. “We will have to start talking about it this year.”

Political Balance

The agreement ends months of debate within the government about how to curb gains in coal use and balance the needs of the environment against the tens of thousands of people employed by traditional utilities.

The compromise is an “appropriate way” to reach climate targets, RWE spokeswoman Stephanie Schunck said by phone from Essen. While it will lead to job cuts, the company’s three opencast lignite mines will be able to stay open, she said. RWE doesn’t yet know how many of its lignite plants will join the capacity reserve, Schunck said.

Merkel’s government is under pressure to rein in coal as the European Union works toward cutting greenhouse gases, part of a global deal on climate change that the UN is pushing to conclude in Paris at the end of this year. With Germany already committed to closing all nuclear reactors by 2022, the nation is seeking alternatives to make up for lost supplies.

Lignite’s Future

The country’s lignite plants generated 25.4 percent of German power last year, second only to renewables with 26.2 percent, according to AG Energiebilanzen. Hard coal accounted for 18 percent.

Coal and specifically lignite, the most polluting form of the fuel, got a boost in recent years as the first nuclear plants were switched off. Merkel’s ambition is to stimulate renewable forms of energy, especially solar farms and offshore wind plants in the North Sea, as a replacement.

That program has started to draw criticism. Businesses are concerned that power bills will rise, and residents are upset about the blight on landscapes caused by high-voltage power lines needed to link wind farms to industrial regions.

As part of Thursday’s deal, the government agreed with state leaders including Bavaria’s Horst Seehofer to prioritize underground cables when adding new power lines instead of opting for massive new pylons.

Environmental groups including Greenpeace said Merkel failed to honor a pledge to protect the climate made at a Group of Seven nations meeting in Bavaria in June.

“Instead of starting the phase-out of coal as promised, the chancellor realizes all the dreams of power plant operators,” Tobias Muenchmeyer, a Greenpeace activist, said in an e-mailed statement. “They have to cut less CO2 and are even given billions for it.”

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