Costs and benefits of the German government s energy and climate package

Transcription

1 1 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 The goal is for global emissions to lie 50 percent below 1990 levels by 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 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 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 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 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 CO 2 equivalent, or around 18 percent below levels in the base year 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 CO 2 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 CO 2 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 CO 2 strategy for passenger cars 17 Expansion of the biofuels market 18 Reform of vehicle tax on CO 2 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 innovation

3 3 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 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 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 30

4 4 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-cyclecosts 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 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 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 A biogas feed-in regulation is currently being elaborated to this end.

5 5 Transport: CO 2 strategy for passenger cars: Average CO 2 emissions from new passenger cars in the EU will be reduced to 120g CO 2 /km by 2012 in the framework of the CO 2 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 CO 2 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 6 According to these calculations almost 220 million tonnes CO 2 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 CO 2 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 CO 2 will also make a respective contribution of more than 30 million tonnes (see Table 2). Measure no. Table 2: Impact of the Meseberg energy and climate programme Title of measure CO 2 saving in million t by 2030 Savings in electricity 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 CCS technologies 5 Clean power-station technologies Renewable energies electricity generation Expansion of renewable energies in the power sector Combined heat and power Combined heat-and-power generation Building modernisation and heating systems Energy Saving Ordinance 11 Operating costs of rental accommodation 12 Modernisation programme to reduce CO 2 emissions from buildings 13 Energy-efficient modernisation of social infrastructure 15 Programme for the energy-efficient modernisation of federal buildings Renewable energies heat supply Provisions on the feed-in of biogas to natural gas grids 14 Renewable Energies Heat Act Transport CO 2 strategy for passenger cars 17 Expansion of the biofuels market 18 Reform of vehicle tax on CO 2 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, N 2 O, F gases) In percent compared with base year -36.6% Source: Federal Environmental Agency (2007)

7 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). Measure no. Table 3: Costs and benefits of selected measures in the year 2020 Title of measure Gross costs in billion euro Annually saved (fossil) energy in billion euro Reduction costs in euro/t CO 2 1 Combined heat and power generation Electricity from renewable energies Energy management systems and support programmes energy/climate 8 Energy-efficient products - households/industry A Energy Saving Ordinance B Replacement of night-storage heaters Modernisation programme to reduce CO 2 emissions from buildings Energy-efficient modernisation of social infrastructure Renewable energies heat Programme for the energy-efficient modernisation of federal buildings CO 2 strategy for passenger cars Biofuels to to 168 Total 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 ($65

8 8 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 CO 2 avoidance costs are set at -58 euro/tonne. o In the transport sector, approx. 8 billion euro can be saved by 2020, CO 2 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 CO 2. o Avoidance costs for combined heat and power total 13 euro per tonne CO 2, for renewables in the electricity sector 27 euro per tonne CO 2. This entails moderate costs. o In contrast, reduction costs for heat from renewables of 77 euro/t CO 2, and of euro/t CO 2 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 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 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 CO 2 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 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 CO 2 avoidance costs for renewables in the electricity sector are on average 32 euro/tonne CO 2, the Fraunhofer ISI study commissioned by the Federal Environmental Agency calculates an average of 27 euro/tonne CO 2. 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 This will contribute to the repowering of Germany s plants. In comparison with previous

10 10 production in old plants with considerably lower efficiency, this can lead to savings of up to 42 million tonnes CO 2. There are also plans for up to 20 further coal-fired power plants, which may be connected to the grid from 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 CO 2 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 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 In the national allocation plan the German government has already reduced emission allowances by 57 million tonnes CO 2 as compared

11 11 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 CO 2 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 CO 2 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 For operators, this means that new power plants that are planned or built today should be CCSready. 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 Against this background, climate protection is both an ecological and an economic imperative.