EU warned ‘do not play with fire’ over energy rebates for German industry


This article is part of our special report Industrial Renaissance.

SPECIAL REPORT / During a recent visit to Brussels, German energy minister Sigmar Gabriel praised EU efforts for re-industrialisation. But he also fiercely defended industrial exemptions from his country's renewable energy surcharge, warning the European Commission not to "play with fire" ahead of the EU elections, EURACTIV Germany reports.

The Social Democrat (SPD) minister for economics and energy, Sigmar Gabriel, met with European Commission President José Manuel Barroso, Trade Commissioner Karel De Gucht and Industry Commissioner Antonio Tajani in Brussels last Thursday (20 February).

There, Tajani presented the Commission’s strategy for an “industrial renaissance“, an initiative that received the full support of Gabriel, who said too much focus had been placed in the past on the services and financial services sectors.

Industry and related services generate more than one third of added-value in the German economy, a significantly bigger portion than in other EU countries. Collectively, the manufacturing sector directly provides 12 million jobs, close to 30% of all workers in Germany.

In that context, the Commission initiative sent a “good and important signal”, Gabriel said.

Ever-growing energy costs

That was for the pleasant part for the meeting.

Turning to more contentious issues, Gabriel pointed to high energy prices as a key weakness, not just for German industry, but also for households, some of which can barely afford their energy, heating and hot water bills.

6.9 million households spend more than a tenth of their income on energy. In 2008 this number was 5.5 million. These statistics originate from a statement by the German government, responding to an inquiry from the Green Party in the Bundestag and reported by Spiegel Online.

German domestic energy prices are steadily creeping up to 48% above the European average. After a likely increase in the renewable energy surcharge for 2014, a further rise in domestic energy prices is expected. Industry energy prices in Germany are roughly 19% above the EU average.

In Germany, the Renewable Energy Law (EEG) requires that the cost of expanding renewable energy sources is transferred to and distributed among end-users through a surcharge on the market energy price. But this extra fee has risen considerably over the past few years. The rise is partially due to the fact that bulk consumers are largely exempt from paying the EEG surcharge.

The retention of exemption rules for energy-intensive companies as a part of green energy promotion in Germany is currently a key point of contention between Berlin and Brussels. But without industry rebates, the German government fears a domestic threat of de-industrialisation.

‘Difficult Balance’

At the meeting of the Competitiveness Council last Thursday, Gabriel once again emphasised the importance of further developing the EEG.

But he said energy-intensive industry should be relieved of certain burdens when they are subject to international competition.

“That is a difficult balance. On the one hand, energy transitions cost money regardless of where they take place – even in Germany. On the other hand, we must ensure that our industry remains competitive. Steel, chemicals, copper, aluminium – there, competition is not in Europe but on the global market,” the SPD politician said.

In December, the European Commission announced the start of a full assessment over EEG compliance with EU law. The competition authority in Brussels wants to determine whether or not partial relief for energy-intensive companies is in compliance with EU state-aid law. The German government does not see EEG subsidies and exemptions for energy-intensive companies as state-aid, arguing instead that they are compatible with EU regulations.

Speaking in Brussels, Gabriel was significantly more sceptical than a few days earlier. After EU Competition Commissioner Joaquín Almunia’s visit to Berlin last Monday (17 February), both sides seemed closer to an agreement over EEG reforms.

>> Read: Brussels and Berlin near agreement over green energy rebates

But on Thursday Gabriel indicated that the positions of Berlin and Brussels continue to be far apart on the issue.

“It must be understood that whoever does not handle issues regarding German industry and its burdens with particular care, is playing with fire – not only in Germany but also in the EU,” said Vice-Chancellor Gabriel in Brussels. 

“That is not the complaint of a single country. Added value from industry is also the basis of the European Union. We are not allowed to put that on the line,” Gabriel said.

Hammering the point home, he then warned: “If it became known, shortly before the European elections that the Commission was making proposals which would threaten industry in Germany and on a larger scale in Europe, then we should not be surprised if the European elections blow up in our faces.”

On multiple occasions, the German government has clearly stated that a swift reform of the EEG – including the so-called “special equalisation scheme”, reducing the burden for energy-intensive firms – will be a central project in the new parliamentary term.

A final agreement between Brussels and Berlin over future support for renewable energies and the controversial green energy rebates is expected to be met by 9 April this year. At that time, Chancellor Angela Merkel’s cabinet is scheduled to sign off on a draft of the revised EEG with the reformed renewables law coming into force by 1 August, 2014.

The German Green Party calls for a swift agreement over EEG reforms. Internationally competitive, energy-intensive industries as well as planners and developers of renewable energy facilities must have restored planning security as soon as possible. "Our view is that, in the future, exemptions from the EEG surcharge should be strictly limited to energy-intensive companies which are actually competitive on the international market", said the party's faction leaders in the Bundestag, Simone Peter and Anton Hofreiter. "It appears the German government lacks the courage to undertake real reforms to unburden medium-sized and private consumers. As it stands, it will not be possible to dynamically continue the Energiewende and lower EEG costs."

Eva Bulling-Schröter, environment expert for the Left Party's Bundestag faction explained that her party already warned "against the sweeping and, in some cases, excessive industry privileges related to the EEG surcharge". 

"Rebates are a thorn in the side of the European Commission because other states, who do not relieve their industry to this degree, are rightfully irritated over subsidies provided to companies in Germany. The reasoning behind this displeasure would be alleviated if the German government had simply adjusted the industry rebates according to which companies actually sustain relevant competitive disadvantages from Energiewende-related costs. According to various studies, that number is considerably lower than those which are subsidised today. This applies not only to the EEG, but also the green energy tax, network grid fees and emission trading."

The German Chemical Industries Association (VCI) welcome the fact that the European Commission is taking a position with regard to industrial policy. Utz Tillmann, director general of the VCI said, "The Commission is demonstrating that the constant decline in the industry's share of the EU's added value is something it will take seriously. But as usual, it only makes a few concrete proposals over how the competitiveness of industry should be taken into account in future European policy." The goal of re-industrialising Europe cannot be met without anchoring such measures more securely in EU law, Tillmann said. 

Recently, the powerful employers’ group BusinessEurope called on European Commission President José Manuel Barroso to radically shift the EU's energy policy away from climate change mitigation towards cost-competitiveness and security of supply. [more]

But a EU summit dedicated on energy with the objective of lowering prices and boosting the Union’s industrial competitiveness, held on 22 May, ended up without major decisions. [more]

EU Energy Commissioner Günther Oettinger unveiled a document late last year on state intervention in power production that warns EU energy prices will continue to rise unless governments take steps to reduce green subsidies.

As most renewable energies are still more expensive than fossil fuels, a variety of support schemes have been put in place to accelerate their uptake and meet the EU's goal of sourcing 20% of its energy from renewable sources by 2020.

  • 9 April: German cabinet to sign off on draft of reformed Renewable Energy Law (EEG)

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