Costs and benefits of the German government's energy and climate package - BMU
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Federal Environment Ministry Berlin, October 2007
Costs and benefits of the
German government’s energy and climate package
1. Climate protection targets of the German government
On 9 March 2007 the heads of state and government, led by Chancellor Merkel,
reached a historic decision on future climate policy. This decision is a major step
towards integrating energy policy and climate protection and links ambitious climate
protection targets with far-reaching measures:
• By 2020, EU greenhouse gas emissions will be reduced by 30 percent below 1990
levels, provided that other industrialised countries commit themselves to
comparable emission reductions and economically more advanced developing
countries to contributing adequately according to their responsibilities and
respective capabilities. As a second step, the industrialised countries aim to jointly
reduce their emissions by 60 to 80 percent by 2050. The goal is for global
emissions to lie 50 percent below 1990 levels by 2050.
• In anticipation of the outcome of international negotiations, the European Union
is committing now to a reduction in its emissions of at least 20 percent by 2020.
• The key measures for implementing these targets will be a 20 percent increase in
energy efficiency by 2020 compared with ‘business as usual’ and a tripling of the
share of renewables in energy consumption to 20 percent by 2020. This includes
a 10 percent share of biofuels in fuel consumption.
Germany can and will make a decisive contribution to reaching the EU targets. The
German government has therefore formulated the following targets:
• Germany is willing to reduce its emissions by 40 percent below 1990 levels by
2020 if the EU reduces its emissions by 30 percent in the same period. By 2050,
emissions in Germany should be 80 percent below 1990 levels.
• Germany’s energy productivity will be doubled by 2020 compared with 1990.2
• By 2020 there will be a massive expansion of renewables in all sectors: in the
electricity sector their share will increase from the current 12 percent to 25-30
percent, in the heat sector it will increase from 6 to 14 percent and in fuel
production from 6 to 17 percent (by energy content).
2. The German government’s integrated energy and climate programme
According to preliminary estimates, German greenhouse gas emissions in 2006
totalled around 1007 million tonnes CO2 equivalent, or around 18 percent below
levels in the base year 1990. This is a significant success for German climate
protection policy. In order to achieve a 40 percent reduction in greenhouse gases by
2020, a reduction of a further 270 million tonnes CO2 equivalent must be achieved.
Table 1: Measures contained in the Meseburg energy and climate programme
Measure no. Title of measure
1 Combined heat-and-power generation
2 Expansion of renewable energies in the power sector
3 CCS technologies
4 Smart metering
5 Clean power-station technologies
6 Introduction of modern energy management systems
7 Support programmes for climate protection and energy efficiency (apart from
buildings)
8 Energy-efficient products
9 Provisions on the feed-in of biogas to natural gas grids
10 Energy Saving Ordinance
11 Operating costs of rental accommodation
12 Modernisation programme to reduce CO2 emissions from buildings
13 Energy-efficient modernisation of social infrastructure
14 Renewable Energies Heat Act
15 Programme for the energy-efficient modernisation of federal buildings
16 CO2 strategy for passenger cars
17 Expansion of the biofuels market
18 Reform of vehicle tax on CO2 basis
19 Energy labelling of passenger cars
20 Reinforcing the influence of the HGV toll
21 Aviation
22 Shipping
23 Reduction of emissions of fluorinated greenhouse gases
24 Procurement of energy-efficient products and services
25 Energy research and innovation3
26 Electric mobility
27 International projects on climate protection and energy efficiency
28 Reporting on energy and climate policy by German embassies and consulates
29 Transatlantic climate and technology initiative
Against this background, the German cabinet adopted ‘Key Elements of an
Integrated Energy and Climate Programme’ at its meeting in Meseberg on 23/24
August 2007. This programme comprises 29 measures for future energy and climate
policy. The package contains 20 legislative projects (acts and ordinances), which are
now being drawn up by the respective ministries, and decisions on climate policy
support programmes. The Meseberg integrated energy and climate programme is
unprecedented in the history of German climate and energy policy.
3. Main contents of the energy and climate programme
The Meseberg integrated energy and climate programme is very comprehensive and
covers all sectors: from industry, transport and buildings to consumers. Of the 29
measures it contains, the following are particularly important:
Energy efficiency
• Expanding combined heat and power: In order to use energy efficiently, the
share of highly efficient combined heat and power plants in electricity
production will be doubled from the current level of approx. 12 percent to
around 25 percent by 2020. The Combined Heat and Power Act is currently
being amended to this end.
• Increasing energy efficiency in electricity consumption: A number of measures
have been adopted for this, e.g. the widespread introduction of energy
management systems at enterprise level (binding by 2013 at the latest),
improvement in energy consumption labelling, the introduction of smart
metering, the replacement of high-consumption night-storage heaters and new
support measures for energy-efficient products and motors.
• Increasing energy efficiency in buildings: The provisions in the Energy Saving
Ordinance are being tightened to ensure that new buildings consume 30
percent less energy than before as a first step. As a second step, a further 304 percent reduction will be aimed for to ensure that low-energy buildings become standard. The programme for the modernisation of existing buildings will receive long-term funding of 1 billion euro in order to further promote the modernisation of energy systems in buildings. • Procurement of energy-efficient products: The German government is developing environmentally friendly, energy-efficient, technical guidelines for the procurement decisions to be taken by the Federation. In future, the foreseeable operating costs over the serviceable life (above all the costs for the energy consumption of the devices to be procured) must be taken into account as well as purchasing costs during the evaluation of offers (life-cycle- costs principle). Renewable energies • Expansion of renewables in the power sector: By amending the Renewable Energy Sources Act (EEG) the share of renewables in the electricity sector will increase from the current level of around 12 percent to 25-30 percent, in particular through the massive expansion of offshore wind energy use. • Expansion of renewables in the heat sector: In order to wake the ‘sleeping giant’ of renewables in the heat sector, their share in heat supply will increase to 14 percent by 2020. For the first time a Renewable Energies Heat Act will be adopted, and existing support programmes will be strengthened and expanded. • Biofuels: By 2020, the share of biofuels will increase to 20 percent by volume (equivalent to 17 percent by energy content). Here it is essential to ensure that the biomass required is produced sustainably. To this end, the Biofuels Quota Act is being amended and a Biofuels Sustainability Ordinance will be adopted. • Biogas: In future, biogas will be fed into the natural gas grid to a greater extent. A 10 percent share of biogas is possible by 2030. A biogas feed-in regulation is currently being elaborated to this end.
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Transport:
• CO2 strategy for passenger cars: Average CO2 emissions from new passenger
cars in the EU will be reduced to 120g CO2/km by 2012 in the framework of
the CO2 strategy. 10g of this reduction can be achieved through measures
outside of the vehicle. The German government will actively advocate this
position in Brussels. Furthermore, it will amend the motor vehicle tax so that
in future the tax rate will be determined by the CO2 emissions of the car
rather than the cubic capacity. Consumption labelling of cars will also be made
more consumer-friendly.
• Reinforcing the influence of the HGV toll: The HGV toll will be revised in order
to achieve a further reduction in emissions from goods traffic through
increased efficiency, the use of low-emission vehicles and the prevention of
evasive strategies.
• Shipping and aviation: In order to reduce emissions in the rapidly growing
sector of international shipping and aviation, both areas should be
incorporated into emissions trading.
In order to implement the agreed key elements the German cabinet will adopt a
comprehensive legislative package on 5 December 2007 – parallel to the
international Climate Change Conference in Bali - which it will then forward to the
Bundestag and Bundesrat for consultation. The main components of this package will
be the amendment to the Combined Heat and Power Act, the amendment to the
Renewable Energy Sources Act, the Renewable Energies Heat Act, the amendment to
the Energy Saving Ordinance and a proposal for the Federal Länder on amending the
motor vehicle tax. It will also comprise a number of other legislative measures.
4. Climate protection impact of the energy and climate programme
On the basis of the key elements, the Federal Environmental Agency drew up
calculations on the climate protection impacts of the integrated energy and climate
programme. These show that with resolute implementation the programme can lead
to emission reductions of more than 36 percent by 2020 compared with 1990.6
According to these calculations almost 220 million tonnes CO2 will be saved with the
existing and agreed measures. The programme therefore represents a large step
forward towards the -40 percent target. Major reductions in CO2 will be brought
about by the expansion of renewable energies in the electricity sector (54 million
tonnes), increased energy efficiency in buildings (31 million tonnes) and in the area
of electricity consumption (25 million tonnes). The package of measures for the
transport sector and reductions in gases other than CO2 will also make a respective
contribution of more than 30 million tonnes (see Table 2).
Table 2: Impact of the Meseberg energy and climate programme
CO2 saving
Measure
Title of measure in million t
no.
by 2030
Savings in electricity -25.5
4 Smart metering
7 Support programmes for climate protection and energy efficiency
8 Energy-efficient products
10 B Replacement of night-storage heaters
24 Procurement of energy-efficient products and services
Modernising fossil power plants -15
3 CCS technologies
5 Clean power-station technologies
Renewable energies electricity generation -54.4
2 Expansion of renewable energies in the power sector
Combined heat and power -14.3
1 Combined heat-and-power generation
Building modernisation and heating systems -31
10 Energy Saving Ordinance
11 Operating costs of rental accommodation
12 Modernisation programme to reduce CO2 emissions from buildings
13 Energy-efficient modernisation of social infrastructure
15 Programme for the energy-efficient modernisation of federal buildings
Renewable energies heat supply -9.2
9 Provisions on the feed-in of biogas to natural gas grids
14 Renewable Energies Heat Act
Transport -33.6
16 CO2 strategy for passenger cars
17 Expansion of the biofuels market
18 Reform of vehicle tax on CO2 basis
19 Energy labelling of passenger cars
20 Reinforcing the influence of the HGV toll
21 Aviation
22 Shipping
26 Electric mobility
Other greenhouse gases (methane, N2O, F gases) -36.4
-219.4
In percent compared with base year -36.6%
Source: Federal Environmental Agency (2007)7
5. Economic costs and benefits of the energy and climate programme
On behalf of the Federal Environmental Agency, a team of experts calculated the
economic costs and benefits of the energy and climate programme. This team was
led by the Fraunhofer Institute for Systems and Innovation Research (ISI) in
Karlsruhe. In the study “Economic assessment of measures in the integrated energy
and climate programme”, the main measures were analysed on the basis of the key
elements with regard to their programme costs, investment costs and saved energy
costs. The interim findings of the study are clear: The majority of the analysed
measures save costs. In total, by implementing these measures Germany can
achieve gains of 5 billion euro in 2020 (see Table 3).
Table 3: Costs and benefits of selected measures in the year 2020
Annually
saved
Gross costs Reduction
Measure (fossil)
Title of measure in billion costs in
no. energy in
euro euro/t CO2
billion
euro
1 Combined heat and power generation 0.003 -0.3 12.9
2 Electricity from renewable energies 5.55 4.2 27
7 Energy management systems and 2.30 3.2 -90
support programmes energy/climate
8 Energy-efficient products - households/industry 0.21 4.2 -266
10A Energy Saving Ordinance 8.43 10.30 -47
10B Replacement of night-storage heaters 1.05 0.90 23
12 Modernisation programme to reduce CO2 2.43 3.20 -58
emissions from buildings
Energy-efficient modernisation of social
13 0.49 0.26 163
infrastructure
14 Renewable energies heat 4.42 3.5 77
Programme for the energy-efficient
15 0.06 0.080 -38
modernisation of federal buildings
16 CO2 strategy for passenger cars 6.44 8.7 -128
17 Biofuels 0.00 -1.0 to 2.0 84 to 168
Total 31 36.3 -26
Source: Fraunhofer ISI (2007)
The investment costs, calculated on an annuity basis, amount to 31 billion euro in
2020, compared with energy savings of more than 36 billion euro. It is important to
note here that assumptions made regarding gas and oil prices were moderate ($658
per barrel), although even now significantly higher oil prices (approx. $90 per barrel)
are a reality.
The situation varies from sector to sector (see example in box below):
o In buildings alone, 14 billion euro will be saved by 2020. CO2 avoidance
costs are set at -58 euro/tonne.
o In the transport sector, approx. 8 billion euro can be saved by 2020, CO2
avoidance costs are set at -128 euro/tonne. The background here is that
many energy efficiency measures for passenger cars are very cheap and
pay off through lower petrol consumption.
o Efficient appliances lead to cost savings of 4.2 billion euro, avoidance costs
are set at -266 euro/t CO2.
o Avoidance costs for combined heat and power total 13 euro per tonne CO2,
for renewables in the electricity sector 27 euro per tonne CO2. This entails
moderate costs.
o In contrast, reduction costs for heat from renewables of 77 euro/t CO2,
and of 84-168 euro/t CO2 for biofuels, are significantly higher (the margin
reflects the uncertainty regarding the development of second-generation
biofuels). However, these costs should be seen as investments for the
future: avoidance costs for renewable electricity production were also
significantly higher 5-10 years ago; and the technological development in
the heat and fuel markets is merely lagging 5-10 years behind the dynamic
development in the electricity market triggered by the Renewable Energy
Sources Act. Furthermore, the estimate for the oil price was very
conservative.9
Examples of costs and benefits of energy efficiency measures:
Buildings: Insulating the ceiling of a cellar in a single family house costs around 2000 euro. This
saves approx. 150 euro in heating costs per year; support can also be applied for from the KfW
building rehabilitation programme. The investment therefore pays off in around 10 years - even
quicker in the case of rising oil and gas prices.
Transport: Purchasing a small car with 20 percent greater efficiency only costs an additional 100-
200 euro - and over 6 years saves around 700 euro, i.e. more than 5 times as much!
Motors: An efficient 11 kilowatt motor for industrial operation only costs 100 euro more than a
standard model - these 100 euro are already saved in the first year, from the second year a profit
of 100 euro per year is made!
Products: A high-efficiency fridge (A++) costs around 50 euro more than a less efficient
appliance, but saves 11 euro per year. Buying the more efficient fridge therefore pays off in only a
few years.
The above measures can be realised through the planned framework (acts,
ordinances and support programmes) even though the programme costs for the
federal budget of 1 billion euro in 2020 are moderate. Furthermore, it is important to
note that implementing these measures strengthens domestic industry and
employment since the investments are made domestically, while the energy costs
saved essentially reduce capital transfer to oil and gas supply countries.
The development and scale of the CO2 reduction costs are comparable with the
findings of other studies. For example, the Federation of German Industries (BDI)
commissioned McKinsey with the study “Costs and Potentials of Greenhouse Gas
Abatement in Germany”, which was presented in September 2007. The conclusion of
this study is identical to that of the Fraunhofer ISI: Energy efficiency measures in
particular are generally linked to economic benefits. The figures are also similar
regarding avoidance costs for renewable energies: in the McKinsey study, the CO2
avoidance costs for renewables in the electricity sector are on average 32 euro/tonne
CO2, the Fraunhofer ISI study commissioned by the Federal Environmental Agency
calculates an average of 27 euro/tonne CO2. It can therefore be assumed that the
cost and benefit predictions are relatively “robust”.
6. Role of coal-fired power plants in climate protection policy
Plans are currently being discussed throughout Germany for the construction of
various new power plants. It is planned that nine coal-fired plants - six hard coal and
three lignite plants - and nine natural gas plants will be constructed by 2012. This
will contribute to the repowering of Germany’s plants. In comparison with previous10
production in old plants with considerably lower efficiency, this can lead to savings of
up to 42 million tonnes CO2.
There are also plans for up to 20 further coal-fired power plants, which may be
connected to the grid from 2013. At the moment it is very unclear how many of
these plants will actually be built. Many factors play a role in investment decisions,
such as future coal and gas prices, the development of electricity prices, future CO2
prices and the allocation mechanism for new plants from 2013, the expansion of
renewable energies and combined heat and power, future demand for electricity, the
construction price of power plants, the competition situation and access rules in the
electricity market.
What is clear is that the construction of new plants must be compatible with the
German government’s climate protection target of reducing greenhouse gas
emissions by 40 percent below 1990 levels by 2020. Against this background, beyond
the coal-fired plants already under construction there is no leeway for coal-fired
plants that are not CHP plants or fitted with CCS technology.
The German government is defining the framework conditions in such as way as to
ensure that investment decisions in repowering are guided by political objectives.
Three factors are particularly relevant in this context:
• Promoting combined heat-power generation: Through simultaneous
production of electricity and heat, combined heat and power plants achieve an
excellent efficiency of up to 90 percent. They make particularly efficient use of
fuel (coal or gas), for example by heating homes and at the same time
supplying electricity. With the new Combined Heat and Power Act the German
government will support the construction of new CHP plants and the
expansion of local heating networks with 750 million euro per year.
• Emissions trading: Emissions trading at EU level will again be tightened as of
2013. In the national allocation plan 2008-2012 the German government has
already reduced emission allowances by 57 million tonnes CO2 as compared11
to the allocations in the first trading period. About 10 percent of the
allowances will be auctioned. The consequences will predominantly be felt in
the energy sector: On average, installations will receive about 30 percent
fewer free emission allowances than they actually need, the least efficient
plants undergoing the most drastic cuts. At the same time, operators of new
power plants will have to be prepared, after the review of the EU Emissions
Trading Directive in 2013, to buy 100 percent of their CO2 allowances on the
market (nationally or internationally).
• Carbon capture and storage (CCS): The European Commission is currently
developing a legal framework for CCS technologies. The German government
supports this technology, which captures CO2 at the power plant so that it can
be compressed and stored safely underground. The goal is to establish CCS as
a standard for new coal-fired power plants as of 2020. For operators, this
means that new power plants that are planned or built today should be “CCS-
ready”.
Given this set of framework conditions, additional coal-fired power plants can only
be economical if they apply combined heat-power generation and if the heat is
used. If the economic incentives described, i.e. emissions trading and the
Combined Heat and Power Act, are not sufficient, complementary regulatory
regimes will have to be considered in addition.
7. Conclusion
Germany plays a leadership role in international climate protection. The decisions
adopted in Meseberg on an integrated energy and climate policy underlined this
once more. Implementation of these decisions not only serves the purpose of
reaching Germany’s climate protection targets, it also helps to realise economic
profits of more than 5 billion euro in 2020. Against this background, climate
protection is both an ecological and an economic imperative.You can also read
