European Affairs

At the international level, we are trying to persuade the Organization of Petroleum Exporting Countries and other oil producing countries to avert a real crude oil shortage on world markets. There is no shortage of oil at the moment, but oil prices are still too high, largely because of political uncertainties in the Middle East and speculation in the futures market. It is not in the interest either of consumer or of producer countries that these levels persist.

In the past, intensive cooperation within the International Energy Agency in Paris, especially in the oil sector, was highly valuable. The IEA dates back to the first oil shock in 1973 and 1974, when it was formed in response to OPEC's oil price cartel. The IEA's tasks include drafting political strategies to deal with oil supply problems, and to bring global supply and demand for oil into equilibrium.

But the IEA also wants individual countries to incorporate its goals in their energy policies. Among these are diversification, efficiency, and flexibility in order to achieve oil supply security; a common oil contingency system; environmental compatibility of energy supplies; and research and development into new energy technologies.

Each member country follows its own national path within this larger framework. Energy input per unit of gross domestic product can vary considerably from country to country. In Germany, for instance, it is little more than eight gigajoules (or eight billion joules), while in the United States the figure stands at 14 gigajoules.

This disparity stems from different patterns of behavior, traditions, climatic conditions, and policies.

Our research institutes, which regularly report on changes in the energy industry, have concluded that in Germany, primary energy consumption could decline by five percent by 2020. In addition, the composition of primary energy sources could change as follows:

  • The share of gas is likely to rise from 21 percent in 1998 to 26.1 percent by 2015.
  • Nuclear power will probably decline from 12.2 percent to approximately eight percent over the same period.
  • The shares of hard coal, now at 14 percent, and of lignite, currently 10.5 percent, are likely to decline slightly.
  • Oil, now at 40 percent, will probably remain stable.
  • New and renewable energy sources will probably double their share to four percent by 2020.

Germany's decision to abandon nuclear power has attracted a great deal of attention. This decision forecloses an energy option that in Germany, only a few decades ago, was celebrated as a vision for the future. For some time now, however, a majority of Germans have opposed nuclear energy in the long-term. The German government could not ignore this opposition.

During the administration of former Chancellor Helmut Kohl, which had a more favorable view of nuclear energy, just a single nuclear power plant was ordered for construction, and that was more than 18 years ago. We have, therefore, already had a very long moratorium on nuclear power in Germany. This is also true of other countries - most notably the United States following the Three Mile Island accident.

Besides questions of reactor safety, there are good economic reasons for abandoning nuclear power. The liberalization of electricity markets in the European Union calls into question the expensive investments necessary for nuclear energy. In addition, German investors now have alternatives to nuclear energy that yield significantly higher profits and lower risk. Economic factors, therefore, have dictated the end of nuclear power in Germany.

The government has reached an agreement with the electricity industry on residual operating periods for the nuclear power plants, which rules out claims against the state for potential economic damages. A so-called "normal operation time" of 32 years was also laid down for all nuclear power stations. On this basis, we expect the last German nuclear power plant to be decommissioned in just over 20 years.

It is time, therefore, for a new beginning. In the past, disputes over the use of nuclear energy threatened to divert attention from the need to work toward sustainable, safe, competitive, and environmentally compatible energy supplies.

The decision to abandon nuclear power raises a number of questions. First, how can we close the gap that arises when nuclear energy is eliminated? Second, how can the German goal of reducing CO2 emissions be attained? And finally, how can the commitments from the Kyoto Protocol be fulfilled?

Phasing out nuclear power will have only a slight impact up to 2005, the deadline for lowering CO2 emissions by 25 percent. Before then, only a few nuclear power stations will be decommissioned and, because of over-capacity in electricity supplies, they will not be replaced by new power plants.

Nuclear energy's long-term contribution to climate protection is often overestimated. Such estimates assume that nuclear plants will operate permanently, but, as a result of economic factors, that will not be the case. And, although nuclear power provides 30 percent of electricity in Germany, it only covers 10 percent of primary energy needs. A more comprehensive approach is needed to attain the CO2 target.

The concept of "sustainable development" was not first coined in English, but can be found in the writings of Johann Heinrich von Thünen, a 19th century German forestry expert and economist. As he understood the term, sustainable operations within the forestry sector meant that no more timber would be cut from forest areas than could be replaced by young trees.

When the concept is applied to energy policy, it refers to environmental compatibility, efficiency, and supply security. At the same time, however, energy policy needs to be based on market mechanisms to ensure efficient production and supply. This is how Germany is implementing ecological reform and technological innovation

The liberalization of the electricity and gas markets has sent an important signal. Germany decided to open its markets immediately and fully, and rapidly developing competition has already contributed to increased efficiency. In trade and industry alone, for example, electricity costs declined by more than DM10 billion (approximately $456 million) in 1999. Private customers are also benefiting from this trend.

But not all members of the IEA have taken steps to liberalize their markets, and potential gains in efficiency are wasted in the absence of competition. For this reason, Germany will continue to urge the EU Commission to assert its supervisory role against competitive distortions.

The EU's incomplete market liberalization illustrates the conflict between competition and regulation. EU governments vary in their responsibilities for the energy sector. Our view is that the state must set energy policy, and take action when the market fails to produce the desired results. This includes, in particular, environmental policy goals.

The German government has therefore tried to establish a consensus regarding energy policy, especially with regard to environmental goals. During the Energy Dialogue 2000 conference, a forum attended by industry representatives and non-governmental organizations, agreements were reached on major energy issues. These included, for example:

  • Working toward sustainable development.
  • Giving the environment and other social goals equal status within an energy policy.
  • Recognizing that Germany needs a new mix of energy sources.
  • Giving market mechanisms priority.

Although we assume that renewable energies have great potential, they cannot yet compete with current technologies. We are, therefore, granting specific assistance to increase their share of the overall energy supply and to make them more efficient. The German government started two support programs last year to help these new technologies, allotting DM2 billion for this purpose.

The Renewable Energy Act aims to double the share of renewable energies in overall energy consumption by the year 2010, including an increase from six percent to 12 percent of electricity supplies. The Act allows producers of renewable electricity to sell to the public at fixed, preferential rates. The cost of this legislation will ultimately have to be borne by the consumer. It is expected to unleash a powerful surge of renewable energy production.

Highly efficient cogeneration technology - which recycles heat energy for electrical generation - must also be promoted in the interest of environmental protection. Should cogeneration prove to be the most suitable technology for achieving German climate protection goals, the government will be willing to assist its development on a longer-term basis. This assumes, however, a very high utilization rate. Further action will be postponed until the economic and environmental advantages of cogeneration have been studied and demonstrated.

Another element of German energy policy is the ecotax, which will gradually raise energy taxes between 1999 and 2003. The highest increase will be on fuel for transportation, although taxes on other energy sources, such as light heating oil and gas, will also go up.

The underlying principle of these new tax rates is the link between environmental protection and lower labor costs. Ecotax revenues - a projected DM35 billion or so by 2003 - will allow contributions to the pension insurance system to be lowered, relieving employers as well as wage and salary earners.

Recently, Chancellor Ger-hard Schroeder made it clear that the government is not willing to set the ecotax aside, even if high oil prices continue. This tax, of course, makes fuel even more expensive. To offset those costs, Germany intends to provide commuters and lower income residents with economic assistance via other channels.

Higher prices should lead to changes in consumer behavior. A favorite saying in the German Economics Ministry in the early 1970s was "energy conservation is our best energy source." Among the federal government's present measures are new, tougher standards for insulation in the housing sector, including older buildings. We are also paying close attention to the labeling of energy consumption figures on appliances and devices.

Many technologies, however, particularly those in the areas of energy conservation and renewable energies, will not become economical without considerable research and development. The German government has earmarked DM230 million for this purpose annually.

Energy research and development efforts, including fuel cell technology, have proven worthwhile. Three new technologies are already well established in the German energy market. Germany leads the world in the use of wind energy, is a leading producer of solar cells, and has a 35 percent market share of gas turbines worldwide.

Germany's toughest competitors, incidentally, are often American companies. This competition suggests similarities between the U.S. and German energy industries and energy policies. German and American companies are also working together, for example, in the development of fuel cell technology. On both sides of the Atlantic we share an important overall objective - a sustainable energy supply for decades to come.


This article was published in European Affairs: Volume number II, Issue number I in the Winter of 2001.