Italy just added its name to the list of country’s pledging to phase out coal. A fair energy transition requires significant efforts but there is experience to build on, writes Julian Schwartzkopff.
Julian Schwartzkopff works as a policy adviser in E3G’s Berlin office. He presented the German experience on 18 October in Bratislava at EURACTIV Stakeholder Workshop “Coal in Slovakia: Ensuring a just transition”.
Europe will need to completely phase out coal-fired power generation in order to meet its obligations under the Paris Agreement. This is generally accepted, although the precise timeframe of a coal phase-out is still a matter of contentious debate.
In Germany, the debate has been particularly hard-fought over the past years. The remaining lignite mining regions in Germany have been vocally opposed to any legislation to phase out coal, as the coal industry typically provides a high share of local employment and added value there.
Trade unions and energy companies also argued that a phase-out would cause job losses and endanger security of supply.
After the German elections last month, however, it looks increasingly likely that the coalition agreement currently being negotiated by the CDU, FDP and Green party will contain a coal phase-out provision.
Realistic expectations are needed
The good news is that Germany has acquired a wealth of experience in managing structural change, which it can draw on to make this transition as fair as possible for the affected stakeholders and regions.
Probably the most famous examples of large-scale structural policy programs in Germany are the successive regional support programs for the Ruhr area, as well as the rebuilding of Eastern Germany (Aufbau Ost).
Both are generally considered successful as the economic fundamentals in the Ruhr area and Eastern Germany and have improved markedly – albeit only after years of efforts and billions of Euros in support.
This already shows that structural policy should not be pursued with unrealistic expectations. It cannot create a prosperous and diversified economy over night. What it can do is contribute to the stabilisation of the socio-economic development in a given region over the medium – and long-term.
A qualified success
In the Ruhr Area, consecutive regional funding programs led to significant achievements, such as stopping population decline and fuelling economic growth by establishing one of Germany’s largest university locations with highly specialized, internationally successful growth centres in sectors like logistics, health services and machinery.
The structural policy programs aimed at eastern Germany, such as the Solidarity Pact II, were also comparatively successful.
They contributed to East German GDP more than doubling since 1991, even though per capita income still remains 33% below the West German average. Unemployment has decreased from 14.8% to below 10% since 1994, while long-term unemployment has decreased by 37 % compared to 2008 levels.
Promoting sustainable jobs
One key lesson to be drawn from these programs is that support schemes should focus on promoting sustainable job creation and growth.
In the Ruhr area, for instance, politicians set up a multi-year program to modernise and revitalise the ailing coal and steel industry when the oil crisis hit in 1973. This turned out to be a colossal waste of money – none of the jobs created were sustainable as the decline in employment continued.
This could have been avoided by studying the underlying economic fundamentals, which had not changed despite a spike in oil prices. German hard coal production had simply become more expensive than its international competitors.
Similarly, the initial political response in East Germany focused on providing jobs at any cost through large-scale job creation schemes which largely turned out to be failed investments.
One example is the construction of a racetrack in Lusatia, the Lausitzring, which was not a commercial success and has now been sold to be used as a test track. Economic support and regional policy should be focused on economic sectors that can exist in a low-carbon future and are economically viable in the long term.
Act, don’t react
Maybe the most important lesson to be learnt from the German experience is to plan the transition out of coal proactively, rather than react to unfolding events.
Both in the case of hard coal collapse in the Ruhr area, and again after 1990 when much of East Germany’s heavy industry collapsed, politicians scrambled to find a solution to an unfolding crisis.
Nowadays, the situation is different. The coal phase-out, which will need to happen across Europe as the low-carbon transition takes its course, can be planned for. We know it is coming, even if observers disagree on the speed of the transition. Economic diversification strategies at the national and regional levels can and should already be developed now to enable a smooth transition to a future beyond coal.