Berlin set to scrap plans for climate change levy on power sector

Germany will scrap plans to raise emissions charges for older coal-fired power stations, bowing to pressure from the power sector which warned that the levy would result in the closure of mines and power plants.

The levy was proposed in March as a way of pushing power producers into make deeper cuts in carbon emissions. Germany wants to cut CO2 emissions by 40 per cent from 1990 levels by 2020, including 22m tonnes in emissions from the power sector.

However, the plan to impose penalties on the oldest and most polluting power plants has been dropped, according to two people with knowledge of the discussions.

The move illustrates the challenge Berlin faces as it attempts to meet its ambitious targets to combat climate change while safeguarding jobs. Despite a shift towards renewable energy, Germany still generates 44 per cent of its electricity from coal.

The government’s retreat, first reported by state broadcaster ARD, helped lift shares in RWE, Germany’s second biggest utility which is heavily dependent on coal for power generation.

RWE had said it would be forced to close two of its three lignite mines and 17 of 20 lignite-fired power plants if the levy was introduced. It shares rose more than 2 per cent to €20.30 on Wednesday.

According to a person with knowledge of the discussions, Berlin will now looking at alternative ways of cutting CO2 emissions, including mothballing three gigawatts of its 49 gigawatts of coal-fired power capacity.

The affected plants would be moved into reserve in tranches to be phased out four years later to spread job losses.

Sigmar Gabriel, Germany’s economics minister, has fought to maintain the levy despite fierce opposition within his own Social Democrat party, for whom the mining region of North Rhine-Westphalia is a stronghold.

In a speech in Berlin on Wednesday he maintained the levy was still an option, but acknowledged it could lead to “job losses and a collapse of the industry”. A final decision would be made on July 1, he said.

The retreat comes at a time when Angela Merkel, German chancellor, has set out ambitious goals in the fight against climate change. At the Group of Seven leaders’ meeting in Germany this month, the seven nations agreed an ambitious plan to phase out fossil fuels emissions this century.

However, Oliver Krischer, deputy leader in the Bundestag of the opposition Green party, said: “Just two weeks after the [G7 meeting in] Elmau and Angela Merkel’s nebulous promises on global climate protection, the government is once again shaping policies against climate protection and in favour of lignite.”

Germany would have to mothball at least 5GW of coal-fired capacity to meet its climate change goals, Mr Krischer added.