Euractiv 29/05/2015
No form of support for renewable energy sources has an effect on the actual amount of CO2 reduction, says Magdeburg-based environmental economist Joachim Weimann, recommending emissions trading and burden-sharing with developing countries to tackle climate change.
Joachim Weimann is a professor of economics at the Otto von Guericke University, in Magdeburg. In his book “The Climate Policy Catastrophe”, Weimann criticises traditional climate policy based on government regulations and subsidies. He spoke with EurActiv.de’s Editor-in-Chief, Daniel Tost.
The UN Climate Conference in Paris is coming up in December. What can we rationally expect from Paris?
To be honest, it is very difficult for me to come up with expectations for that. To some extent, there is a promise in the room that Paris will finally result in negotiating binding reduction targets. But experience from previous climate negotiation rounds has taught us that too much optimism is not advisable. Since the climate conferences have been held, global CO2 emissions have increased by 60%. That does not necessarily suggest the negotiations have been successful.
At a fundamental level, we may simply have false expectations. Every year, we go into climate negotiations hoping that at some point there will be a breakthrough and we will arrive at a solution. But these negotiations are designed to be worldwide negotiations. That means that very very many and, above all, very different partners are seated at one table with extremely different interests and extremely different negotiating strategies. Expecting a consensual solution to come out of that is quite optimistic, without going so far as to call it naïve.
Are international agreements the right instrument toward achieving success in global climate protection?
There is no alternative to an international solution for the climate issue. If you look at how large the shares of the world’s biggest emitters are, it becomes clear that it will not work without a relatively large international coalition. We need international agreements. Instead, the question is whether the strategy of calling all countries to one table is wise or if it might be better to organise a global emissions trading system, for example.
One could form centres where these systems already exist, such as in Europe. Then these emissions trading regions could gradually be expanded to include new countries in trading. That would have the added benefit that bilateral negotiations could take place between existing emissions trading regions and a potential member country. One could also discuss transfers that might encourage such accession. All of this would be difficult to manage in such a large format.
What can the world learn from Europe in that regard?
Firstly, that an emissions trading system works. But we have actually known that for a while now. The United States already tried it out in the 70s with the Clean Air Act and to fight acid rain. It has definitely been a success story. The Americans were able to get their sulfur dioxide emissions under control in record time and at an extremely low cost with their emissions trading system.
The second lesson is that, apparently, something like that also works in an international context. The EU has proven that. Emissions trading in Europe has been a complete success. In that sense, the EU is leading the way.
Something that should not be copied is that this path has been weighed down and hindered by rather counterproductive national measures, as we have seen in Germany, for example.
You have repeatedly spoken out against all the usual approaches to climate policy, especially against government regulations and subsidies aimed at expanding renewables. Why?
In its last progress report, even the World Climate Council determined that when you have emissions trading with binding emissions restrictions – as is the case in Europe – every kind of national renewables promotion is redundant. All forms of renewable energy promotion, have no effect on the actual amount of CO2 reduction. They only drive up the cost of reduction, which is already defined by the cap set in emissions trading. That is the only effect we achieve with renewables. It makes little sense and is not a good response to the challenge of climate change.
We must make use of our resources in the most cost-efficient way possible. Then we can achieve the highest possible success in reducing greenhouse gas emissions. With renewables, we are wasting a considerable amount of resources. That is not sensible climate policy.
That is why I have been criticising this for many years and I am not the only one. But politicians have decided on this strategy and will be difficult to convince otherwise. But nobody is prepared to enter into the discussion over whether this path is actually the right one. What have we actually achieved and which economic correlations do we need to watch out for? None of that is discussed. Otherwise it would reveal that this was the wrong path, and politicians would have to admit that they have been pursuing the wrong climate policy in Germany for 15 years now. Of course nobody wants that.
What other motives do you see in the German government?
Naturally there are a great many interests involved. There are definitely massive interests in further expansion of renewables – both material and political interests. If one were to remove this issue from the Green Party platform, it would threaten the basis of their existence. The extent to which the Greens influence politics can be clearly observed in the wake of the Fukushima disaster. Ultimately Mrs. Merkel’s call for the Energiewende was motivated by the fear that the Greens could lay claim to an argument so powerful that they would be unbeatable in the elections. Because there is no way to disagree on this issue, there is no reason for politicians to reflect on it.
But wouldn’t a debate of that kind also be difficult to convey to the population?
The problem is simply that the correlations are in fact relatively complex. You have to have a grasp on how emissions trading works. You have to understand that when emissions trading exists – which is a good thing – renewables promotion is counterproductive. That cannot be explained in two sentences. That is the big problem with this discussion. You can’t even explain it to an interested and educated person in a couple sentences. Correlations like these face difficulties in political dialogue. There, it is easier to communicate the positions that say, “A wind turbine produces endless energy. Wind and sun don’t send you an invoice. We will become independent from energy imports.” Once people have engrained that into their minds and strongly believe in it, it is very difficult to convince them of the opposite. It is a task I have devoted myself to for many years but it is a fight that cannot be won unless certain things happen to really initiate a process of rethinking.
What could that be?
That is sure to happen, because the costs of these policies are getting out of hand. The Federal Environment Agency’s energy balance sheets show that wind and solar technology covered a 2.2% share of our primary energy budget in 2012. But for this 2.2% we are already spending €400 billion over the next 20 years. We are paying €400 billion to supply 2.2% of our energy demand. Now if you imagine politicians are saying we need 80% renewables, it becomes clear what kind of dimensions we are talking about.
If you consider that the best locations for wind farms will be occupied first, then the conditions for wind energy cannot improve, but will only get worse. And the point is not to generate energy but, rather, to reduce CO2. With 2.2% renewable energy you are not replacing 2.2% of carbon-fired power, but much less. Renewables simply have the unfortunate characteristic that they have volatile feed-in properties. A large portion of this energy cannot be used as a one-to-one substitute for fossil fuel power stations.
For example, to compensate for the volatility of feeding in, back-up power stations have to idle on standby to a certain extent. During periods with high winds, a lignite power station does not shut-off, it is simply disconnected from the grid and continues to burn coal. In this way, we might be replacing power, but we are not reducing CO2 emissions.
I don’t know what kind of scenario would actually allow us to completely shift our energy supply to renewables at a realistic cost. If this path persists, then the costs will increase exponentially. Those are the costs of power generation but wind turbines also take up a considerable amount of land. By installing them, we are destroying countrysides and interfering with nature and species conservation, but also with property rights. The grid costs will explode. We are already encountering the problem that wind blows in the north, but in the south, we have shut down the nuclear power stations. If the intention is really to substitute everything with renewables, one north-south route will not suffice.
The costs will snowball, and at some point, the situation will lead to reconsideration. At some point, the normative power of the facts will work. Of course it would be nicer if the power of reason were to take effect before then. But at the moment, I don’t see this happening in Germany.
How do you assess the developments surrounding Sigmar Gabriel’s planned coal fee?
First of all, there is no final proposal at the moment. There was, but it was withdrawn. As far as I know, there is not another on the table. As a result, one cannot really make an assessment. In general you could say, if Mr. Gabriel is demanding that coal-fired power plants, (and) buy double the number of certificates to emit one tonne of CO2, then that is like saying there is “good” and “bad” CO2. The CO2 emitted by coal-fired power plants would be bad, and that from gas power plants would be good. Of course, from an economic perspective, that is complete nonsense. CO2 is a homogenous good. How or who emits it is completely unimportant. So the price must be the same across the board. Otherwise, the only effect would be a distortion. Emissions trading would no longer lead to reduction taking place where it comes at the lowest cost. But that is the point of emissions trading.
Coal-fired power plants would be forced to pay the fee through additional certificate purchases, with the argument being that this takes emissions permits off the market. At the moment, emissions permits cost between €7 and €8 a piece. The government could also bring about the same reduction at a lower cost, by simply buying up emissions permits and decommissioning them. That would be much cheaper, and would not rob emissions trading of its capacity to create cost efficiency.
What Mr. Gabriel intends to do is intended to meet certain interests in his party. Specifically, the interests of those who see a coal-fired power station as being just as bad as a nuclear power plant. He has to show these influencers that he is a real politician and a well-established Social Democrat. But it doesn’t make sense.
What demands would you make to German industry?
To begin with, German industry has a very big problem when it comes to climate change. That is a lack of planning capacity. I believe the industry is definitely ready to make contributions to climate protection and make investments. But to do this, it needs reliable framework data and a climate policy that can protect it from competition distortion. Politicians have only insufficiently provided this. That is a shame because emissions trading actually offers a wonderful possibility for both. It leads to emissions coming at one price. Everywhere it is the same. A system like that means you already don’t have distortions of competition within Europe. Of course, there are leakage effects outside Europe.
What does something like that look like more concretely?
If we reduce CO2 here, it could lead to products being produced abroad, which are no longer produced here, thereby cutting emissions. That is like a leak.
There are different channels through which this leakage effect can work. Via companies, for example, that then go abroad or foreign companies producing more. One must always keep these effects in mind.
But at least emissions trading will lead to us having no leakage in Europe. We have the opportunity to really practice long-term climate policy. After all, the EU is doing it too. The world can learn from the EU that long-term calculable prevention targets should be set for the industrial sector to plan on. All of that is possible, but in Germany it is constantly ruined by the fact that we believe we need (a) German climate policy. That is total nonsense in the context of a European emissions market. German climate policy is leading to companies not knowing how they should position themselves in the future.
We are currently facing a situation, for example, in which we are applying far-reaching exceptions to the EEG surcharge for energy-intensive companies. They still have relatively low energy costs. But that is permanently up for discussion. For how long, for which companies, to what extent can these discounts still be provided? There are strong political powers that have something against that. One energy-intensive company will think twice before it produces something new in Germany, simply because it does not know what kinds of fees it will face in the future.
In the United States, a complete rethinking has taken place. There, a re-industrialisation has taken place, driven by low energy costs. Today we can already observe that many German companies would rather put their future investments in the United States, insofar as they are connected with high energy consumption. We have to take that into consideration, otherwise we could be very sorry when the time comes.
How can big emitters such as China be included in global climate policy?
One can hardly expect newly industrialising or developing countries to simply adopt European climate policy. It comes at a considerable cost for Europe, and it would be quite presumptuous to say they should have to follow the same policy as us. Neither the Chinese, nor the Indians, or developing countries as a whole, will agree to that. And that is understandable.
If we want them to pursue climate policy, we have to have fair burden-sharing between industrialised, newly industrialising and developing countries. That can only be done via transfers.
And it has to be negotiated. If we had the political will it would be possible. If we, in Germany, were to stop wasting money on renewables that do not result in any CO2 reductions, then we would free up a large amount of resources for such negotiations. But that requires a political will, which I do not see.
On average, one European emits between 10 and 12 tonnes of CO2 per year. Historically, emissions were much higher in industrialised countries. In developing countries, the level is around one tonne. Now tell a country like China that it has to cut CO2, and make as many efforts as we are. Then they will say, “Take a look at your own carbon footprint, and then we’ll keep talking.”
The moral pressure is on industrialised countries. Still, we must get developing and newly industrialising countries on board, because without them, we might as well just give up the whole thing. The only option is to compensate them, to a certain extent.