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Germany to overcome climate aims deficit with more renewables, hydrogen

14 January 2022 Cristina Brooks

Germany's Ministry of Economic Affairs and Climate Action on 11 January released a set of climate proposals alongside a report, aiming to enact a backlog of emissions cuts that will bring the country back in line with its ambitious climate goals.

Last month, Minister Robert Habeck, who came into power with the three-party ruling coalition on 8 December, told news outlets the country's targets would be missed. The new report from his ministry gave an update on Germany's progress towards emissions reduction targets and "a selection of first projects."

A new plan is needed because Germany recently set stricter climate targets. A German Constitutional Court ruling in April found Germany's climate targets were too weak, following the complaints of farmers affected by climate change.

The previous government amended the Climate Action Law, which sets national carbon budgets, to reduce Germany's GHG emissions by 65% by 2030 compared with 1990 levels, reaching net zero by 2045 instead of 2050.

In August, a related revision to the Federal Climate Change Act entered into force. But this left the new government with a backlog of unabated emissions.

To reach these targets, the report found "the speed of climate protection must almost triple in view of the goals of the Federal Climate Protection Act compared with the status quo. The pace of emissions reductions must more than double and then nearly triple by 2030. Average annual emissions reduction in the past decade was 15 million tons, but by the second half of this decade it will be over 40 million tons per year."

The report warned: "It is legally binding to reduce GHG emissions [by 65%] by 2030."

Renewable auctions

Under the proposals, the government will revise Germany's Renewable Energy Act (EEG) so that the country's renewable output reaches 80% of electricity consumption by 2030, compared with a prior target of 65%. Renewable energy accounted for 42% of electricity consumption in 2019.

But the ministry's report noted how Germany is far from that goal, especially outside the electricity sector. "Today we still cover more than 80% of our energy needs from fossil fuels," it said.

Last year little progress was made, the report said. "In 2021, not a single new offshore wind turbine was connected to the grid. This is the lowest level since the beginning of the offshore wind era in 2012. Only in the case of solar has there been a constant addition of around 4 to 5 GW annually in the last few years, but this can in no way compensate for the lack of wind expansion," it found.

Even so, additional plans for offshore wind are not required. "In the case of offshore wind, we will already meet the expansion targets for 2030 with an increase from 20 to 30 GW to then reach 40 GW by 2035 and at least 70 GW by 2045," the government said. The government started offering zero-subsidy tenders for offshore wind recently on the back of high developer demand.

Through one proposal, the onshore wind law, the government intends to expand onshore wind around military ​​installations to produce 4 GW to 5 GW of power and may saddle local governments with the task of allocating "2% of the land area for onshore wind energy."

The EEG aims to grow renewable generation through government "contracts for difference" auctions, which subsidize developers by guaranteeing levels of income for solar, wind, and biomass-based energy.

At the same time, the government recognized that consumers are feeling the sting of the recent energy price surge by removing the EEG surcharge on consumer bills and paying it from the federal budget in 2023. It will also promote heat pumps, e-mobility, and sector coupling to make energy cheaper.

The renewable energy package follows on the heels of a recent reform of the 2014 EEG act, with amendments that came into effect on 1 January 2021. The EEG may be phased out in 2027.

Another proposal, the solar accelerator package, would make solar power mandatory for new commercial and private buildings. "When it comes to photovoltaics, our goal is to increase installed capacity to 200 GW by 2030. That is more than tripling the status quo," the government said. To achieve this, it aims to increase solar expansion to 20 GW per year.

The ministry's report said Germany's CO2 emissions rose in 2021, so approving renewable energy permits and removing obstacles is an "absolute priority." The government plans a "forward-looking and efficient dimensioning of needs" for network build out.

Industrial carbon contracts

German industrial companies are set to get a new handout if they pitch in towards meeting national climate goals.

The government will help companies invest in climate-neutral production processes by way of new carbon contracts for difference, which are intended to make the costs of green retrofits more predictable.

"The rudder is to be turned this year with two packages of measures. One [is] the so-called climate protection contracts, [aka] carbon contracts for difference. Habeck wants to create legal and financial conditions for them to be used on a large scale," wrote partners at law firm Field Fisher in a blog.

"[Simply] put, climate protection contracts should serve to partially offset these differential costs for companies through a subsidy from the state so that companies invest in the more climate-friendly technology right away. In addition, the German government believes that this also promotes the development of modern technologies," they wrote.

The introduction of carbon contracts for difference will be used to help create markets for green hydrogen by subsidizing industrial consumers, the partners wrote.

The ministry also plans to double previous hydrogen production plans to 10 GW by 2030 with the launch of additional funding initiatives, while continuing to use EU state aid exemptions under the Important Projects of Common European Interest (IPCEI) program.

Notably, Germany earmarked €8 billion ($9.73 billion) in funding for 62 IPCEI hydrogen projects in May. "Building an efficient green hydrogen economy is central to achieving the climate protection goals and positions Germany as a lead market for climate protection technologies," the ministry's report found, adding that it would need to rely on green hydrogen imports to top up domestic green hydrogen supplies.

A revision of Germany's buildings law is also in order. The government will ensure every newly installed heating system for buildings uses at least 65% renewable energy, with new subsidies set to be rolled out from 2025. It also wants to create a new strategy, paired with funding, for district heating networks.

Posted 14 January 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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