Business

Germany, the engine of Europe, plans to ditch nuclear and coal—irrespective of whether or not renewables can fill the void

Eco-protestors have a name for the hard lumps of carbon extracted from the slopes of the Kutznesk Basin in southern Siberia. It’s “blood coal.”

Snowfall falling over the mining pits there has been known to turn black when it mingles with the toxic dust. And locals living near the mines suffer shorter life spans and contract higher cancer rates than their compatriots.  

“It’s the only region in Siberia where children suffer from infectious diseases three times as often as the average in Russia,” Alexandra Koroleva, chairwoman of Ecodefense, told reporters at a demonstration earlier this month, thousands of miles from Siberia, in front of the gates to Germany’s new Datteln IV power plant. 

On the outskirts of Dortmund, the trans-Siberian journey ends and furnaces incinerate the Russian coal, generating an estimated 1.1 megawatts of electricity that will help power commuter trains in the country’s industrial heartland of the Ruhr valley. 

Germany fashions itself a leader in climate change, particularly after it pledged to transition away from, and eventually, outlaw, nuclear and coal. But the world’s fourth largest economy appears incapable of breaking its fossil fuel habit. Even though renewables covered roughly 42 percent of overall power demand last year, seven of the ten largest European CO2 emitters are German coal-fired plants.

And while the country has doubled output from renewable sources in the production of electricity in the past decade, coal, nuclear and gas still feed more than half of the country’s energy supply. Making matters worse, its goal of a near two-thirds renewable target by the end of the decade is not attainable, experts say.

“Very disturbing”

Koroleva, for one, remains uncowed. In fact, she now enjoys moral support from Herbert Diess. The Volkswagen Group CEO attacked Datteln IV as a “paradox,” a €1.5 billion investment in an obsolete technology just as the world is looking to exit coal.

“It’s very disturbing to see that happen, because this plant will be in place probably for the next 30 or 40 years,” he told guests at the carmaker’s EU representation in Brussels recently, before taking to LinkedIn last week to drive home the point.

This was never supposed to happen.

Originally, Datteln operator Uniper, a subsidiary of Finnish state energy group Fortum, said it would phase out its coal assets as long as it got reimbursed for the economic loss. The German government balked at the idea of a hasty action—for one key reason. 

Berlin’s decision to shut down all of its nuclear reactors by 2022 following the Fukushima disaster of 2011 is coming back to haunt it, especially now that wind energy expansion has ground to a halt as a result of bureaucratic red tape and NIMBY squabbles. 

“Don’t forget we’re the only country exiting both coal and atomic energy at the same time. No one else has attempted this,” a deputy industry minister, who spoke on condition of anonymity, told Fortune.

More controversial than Datteln has been the government’s decision to postpone the shutdown of the last lignite-fired power plants until 2038 to safeguard the power supply while protecting jobs in economically-depressed regions. 

One governor from an affected German state went so far as to warn colleagues of the danger to social stability should the country exit earlier. The official reportedly displaying a map that correlated lignite coal-mining areas with strong pockets of support for the far-right Deutschland, AfD. 

Careful analysis of the deal nevertheless suggests that even with the slow exit, the country will eventually run headlong into an electricity shortage because it stands to fall far short of the target for 65 percent of its power mix in 2030 coming from renewables. 

“Barring further countermeasures, the government is heading towards a share of 49 percent at best,” Berlin-based economic think tank DIW concluded in a recent study

Critics have furthermore castigated the government for generously compensating utilities with taxpayer revenue to mothball plants that are decades old, long since written down, and in many cases scheduled for shutdown anyway since they were no longer covering their costs. 

For example, German blue chip RWE pockets €2.6 billion in cash in exchange for accepting largely accounting losses of similar magnitude, while being granted almost two full decades to wind down 8.7 gigawatts worth of heavily polluting lignite capacity. 

The markets are watching

Policymakers worry what kind of signal Germany’s timid coal phase-out sends to its less affluent neighbors that are far more dependent on fossil fuels, and have made no such meaningful pledges to go green.

“Germany is ridiculously late with 2038,” said Bas Eickhout, Vice-President of the Greens in the EU Parliament. “What do you say to Poland that is really relying on coal?” 

Out of more than a dozen European countries that have agreed to phase out the fossil fuel, only Germany chose a time horizon past 2030, according to UK think tank Sandbag.

The markets are watching.

Financial investors, spurred on by regulators fearing sizable fossil fuel risks on bank balance sheets, have recently looked to scale back their exposure to business models at risk of climate change. And, Blackrock CEO Larry Fink told companies he will no longer invest in thermal coal assets, while Germany’s Munich Re, the largest reinsurer in the world, joined institutional invstors holding assets of over $4 trillion in pledging to make their portfolio climate-neutral.

Volkswagen’s Diess, meanwhile, is pushing for policymakers to start pricing carbon and believes each German should accept a cost of 100 euros for each of the average 10 tonnes of CO2 they emit in a year.  

“We need a European coal exit plan with binding phase-out dates for each member state. Otherwise we have no chance to reach our climate goals,” he argued. 

For his part Diess is busy investing €400 million to switch his company’s onsite power plant to cleaner-burning natural gas to reduce carbon emissions by 60 percent, or 1.5 million tonnes a year by 2022 at the latest. 

In doing so, he won’t ever have to worry just how bloody his coal may be.

More must-read stories from Fortune:

—Stock scammers are using coronavirus to dupe investors, SEC warns
Credit Suisse making a comeback, but spying scandal drags down outlook
Why China is still so susceptible to disease outbreaks
A new coronavirus red flag on the horizon—a stronger dollar
—Fortune Explains: Tariffs and trade wars

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