The EU may make German industry pay for renewables

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Up until now Germany has largely exempted energy intensive industries (and increasingly some not so intensive industries) from paying the price of renewable energy. In essence the costs of subsidising renewables is added on to energy bills in the form of a surcharge, but this is not applied to companies that use a large enough amount of electricity. There are good arguments for and against doing this. In favour you have the limitation of “carbon leakage.” If industries are hit too hard they may just move somewhere else and release even more carbon dioxide. It also helps politically to limit big business’s opposition to renewables.

On the other hand making households pay a disproportionate amount of the bill for renewable energy is quite obviously unfair and will lead to an inevitable political backlash against subsidising renewables, something that already appears to have happened in Germany.

This policy however may now be in disarray, having come under the radar of the European Commission. You don’t need to know much about EU competition laws, (and I suspect we all have more interesting things to read about, such as mediaeval theology), to suspect that making energy intensives exempt from paying for renewable energy is stretching the bounds of EU competition laws. And this is exactly what the EU’s Energy Commissioner seems to have concluded. According to Der Speigel:

For the European Commission and for Competition Commissioner Joaquín Almunia, Oettinger said during a dinner event, it is clear that price concessions for energy-intensive companies in Germany amount to an inadmissible subsidy. In the best-case scenario, he said, the Commission would ban such subsidies. But, he added, the worst case could see Brussels demanding that such companies pay back the money they had saved as a result of the discounts they have received.

and

In an internal statement on the grid charges, the legal service of the European Commission noted last October that “German lawmakers are deliberately favoring certain energy-intensive companies, which threatens to distort competition and is apt to obstruct trade between member states.”

Consequently, a few weeks ago, the Competition Commission introduced formal proceedings against Germany, which it suspects of providing “inadmissible subsidies.” In a first step, the case revolves around company exemptions from grid charges, Oettinger told his small audience in Brussels. This amounts to about €800 million in 2013. According to Oettinger, companies and the German government are likely to see sanctions from Brussels this year.

How much could German industry be hit for this? Tim Worstall suggests up to 9 billion euros. If this happens reforming Germany’s renewable subsidies will be even more of a nightmare. Getting rid of the exemptions for industry appears, on balance, to be the right thing. (a rare thing I can agree with the German Green party on). However, if the EU goes hard and tries to reclaim all prior exemptions then political pressure to cut the subsidies will grow even stronger.

Now, I may be repeating myself, but Germany very easily could have avoided all of these problems with a sensible energy policy. Money spent on solar farms in Bavarian would have got a far greater return in terms of emissions saved if it was invested in wind farms. Also, spending stupid money on solar while opening large numbers of new coal plants is remarkably contradictory. To date Germany has 32 GW of solar. Between 2011 and 2015 it will open over 10 GW of coal. These capacity numbers of course mask what this really means. Solar has a capacity factor of 10% in Germany, but coal over 50%. So, the coal plants will produce almost double what the solar panels will. Just imagine: Germany could have build 20 GW of gas, and no coal or solar for the same emissions outcome, but lower costs. And let’s not forget Angela Merkel’s somewhat irrational decision to shut nuclear power plants, while lignite power plants were under construction.

Germany however appears to be the new “Green” model, and it appears that no amount of facts, or coal plants, will do much to budge green opinion on this. Dogma, once in place, is rather hard to shift.

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5 thoughts on “The EU may make German industry pay for renewables

    Proteos said:
    May 31, 2013 at 8:48 pm

    Quite a piece of news! I have long wondered how long it would take the EU to reckon that the german policy has the same effect as a subsidy to its industry. Germany is exempting the energy intensive industries of the renewable tax, while allowing them access to a market where prices are depressed by subsidies granted to renewables.

    However a direct attack on the exemption would mean the end of the subsidies for renewables: event in France, where some excesses have avoided, the tax is still €10/MWh… Quite a sum when the wholesale market price is about €50/MWh. The industry will never accept such a tax, so I guess the EU will not go as far as forcing the big consumers to pay the whole tax.

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      Robert Wilson said:
      May 31, 2013 at 9:06 pm

      Proteus

      Depending on how far the EU takes this it may have pretty serious consequences in almost every EU country. The UK has more or less copied the Germans with their proposed reforms to electricity, limiting the cost impacts on heavy industry. As you say industry pushback on this will be immense. Because of shale gas US electricity prices aren’t likely to rise any time soon. Europe’s on the other are just going to keep rising. What’s possible is that the EU might just turn a blind eye to most of it, on the basis that it’s happening throughout so much of Europe. Otherwise it’s probably going to cause big problems for subsidies.

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        Proteos said:
        June 1, 2013 at 9:45 pm

        Actually, the pronouncements of the European Commission on the energy policy are not compatible with each other. Officially the policy is:
        1/ To have everyone pay the real price of energy
        2/ To have more competition to keep prices down
        3/ To divide the GHG emission by a factor of 5 by 2050
        4/ To make a push for renewables

        Evidently 1/ is not so compatible with tax breaks for big industrial consumers if taken at face value. But if 4/ is backed by subsidies, one has to choose between 1/ and 4/. Point 2/ becomes rather meaningless if 3/ or 4/ are seriously pursued, as both will increase prices now and for at least 20 years.

        At some point, something will have to give. So the victim will either be the competition policy, the renewables policy, the carbon policy or the fairness policy. Or a combination of all these, which can be described as a complete mess.

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    Robert Wilson said:
    June 1, 2013 at 11:21 pm

    Proteos

    Well, it’s been like this since the EU stupidly agreed to a renewables target. Anyone with a functioning brain should have realized that this made the ETS meaningless, but clearly the EU prefers the perception of action.

    I’m not convinced something will give, the ability of anyone to realize this is a mess seems limited. After all, the EC seem to just want a re-run of the farcical 20% renewables, 20% emissions cuts, 20% energy efficiency all by 2020 for 2030. I honestly won’t be surprised if I find the same stupid debates occuring in 2023 about EU policies.

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