German cabinet approves final ‘Coal Phase-out Act’

Economy Minister Peter Altmaier (CDU) satisfied in the Federal Cabinet. His ministry had negotiated the coal phase-out together with the states and power plant operators. [EPA-EFE | Andreas Gora/Pool]

The German cabinet put the finishing touches to its Coal Phase-out Act on Wednesday (24 June), aiming for the draft package of laws to clear the Bundestag before the summer break, unless the European Commission decides to strike it down. EURACTIV Germany reports.

Ministers agreed on final amendments to three different texts, including one law for the restructuring of coal regions, as well as an agreement with operators of lignite power plants, which together will regulate the phase-out of coal in Germany by 2035.

The three draft coal phase-out bills have already been submitted to the Bundestag months ago. The amendments submitted on Wednesday were negotiated between government factions after consultations in the Bundestag and Bundesrat, the two chambers of Parliament, in a bid to speed up the legislative process.

Changes to the Coal Phase-out Act include a higher maximum price for auctions in which operators can bid for compensation for the closure of their coal plants.

Final changes to the agreement were apparently agreed overnight with operators of lignite power plants. In contrast to hard coal, the deal contains fixed exit dates, which had  previously been agreed with state premiers and energy companies. In return, operators will receive compensation payments totalling €4.35 billion.

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2035 phase-out date

The deal between politicians and power plant operators is primarily intended to provide legal certainty to both sides, explains Ida Westphal, a lawyer at NGO ClientEarth.

As long as energy companies shut down their lignite plants by the agreed date, they are entitled to compensation payments. Under the deal, operators will not receive any further claims, even if the CO2 price changes or amendments are made to the Renewable Energy Sources Act (EEG).

Environment Minister Svenja Schulze (SPD) emphasised that the agreement explicitly mentions bringing forward Germany’s coal phase-out to 2035 instead of 2038. Whether this is possible is to be reviewed in the later part of this decade.

“The coal exit can arrive,” Schulze rejoiced.

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€1.75 billion for business as usual?

For Westphal, however, it is not clearly stated in the agreement whether operators can still sue against the possibility of bringing forward decommissioning after 2030.

She also questioned the compensation payments themselves, saying negotiations with coal operators took place behind closed doors, with no involvement or scrutiny from civil society groups.

As German magazine Der Spiegel reported in April, the lignite company LEAG is set to receive €1.75 billion for shutting down its plants in a timeframe that the company had already planned for anyway.

“It is necessary to clearly link the amount of compensation to the future profitability of the power plants to exclude this option,” Westphal said. “But unfortunately the formula for the compensation remains unknown”.

According to ClientEarth, the German government should have refused to compensate power plant owners in the first place.

In a letter to Schulze and Economy Minister Peter Altmaier (CDU), the environmental group called on the government to clarify the shutdown by law. According to ClientEarth, this is the only way to prevent “the contracts from cementing a coal phase-out, which is too late anyway in terms of climate policy, and to give the operators a guarantee of continued operation that goes beyond the law.”

The European Commission will have the last word on the German government’s deal with power plant owners. Within two months, the EU executive will examine whether the compensation payments for coal plant closures are in line with EU state aid rules or if they constitute a market distortion.

“The EU Commission’s examination will hopefully show that these horrendous payments must not be made,” Westphal says.

(Edited by Frédéric Simon)

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