Funding Shortfall: Germany Forced to Cancel Climate Programs

As prices for carbon emissions continue to languish, Berlin is planning to cancel some key subsidy programs aimed at increasing reliance on renewable energies. Germany and other European countries seem uninterested in fixing the problem.

That the German government is facing a massive budget shortfall for projects aimed at transforming the country into a model of alternative energy and environmental friendliness is hardly new. The European cap-and-trade system has for months been sliding into inconsequence as prices for CO2 emissions have stubbornly remained below €5 ($6.47) per ton. The revenues Berlin earns on the mandatory emissions certificates have suffered as a result.

In response, SPIEGEL has learned, the Environment Ministry is set to cancel several flagship subsidy programs this month -- programs that were to be key elements of Germany's transition away from fossil fuels and towards complete reliance on renewables.

By the end of the month, Environment Minister Peter Altmaier, a member of Chancellor Angela Merkel's conservative Christian Democrats, is set to cut the program aimed at promoting electric cars, a fund for research and development of energy storage technologies and a third program focused on protecting and expanding forestland in Germany as a way to absorb more CO2 out of the atmosphere. In April, further programs are on the chopping block, according to an internal ministry document seen by SPIEGEL. In total, 14 programs or one-time measures are affected.

The funding shortage currently faced by the Merkel government is massive. The budget for 2014 includes €2 billion for the Energy and Climate Fund to be generated via the sale and trade of CO2 emissions certificates. But the calculation originally assumed a price of €17 euro per ton. Real emissions prices, however, have been well below that for months and are currently trading below €4 per ton. A paper presented to Merkel's cabinet last week by the Finance Ministry predicted a €1.1 billion shortfall.

Endangered Program

For 2013, the shortfall is likely to be between €1.2 billion and €1.4 billion, according to the Finance Ministry.

As part of Germany's abrupt energy-policy about face in the spring of 2011 in the wake of the nuclear accident in Fukishima, Japan, Merkel pledged to completely phase-out nuclear energy by the early part of the next decade. At the same time, Berlin launched dozens of programs to improve energy efficiency, boost the use of renewables and prepare the country's infrastructure for a future of reliance on environmentally friendly energies.

The endangered program for "electro-mobility," for example, was to put 1 million electric cars on German roads by 2020, a project that was to receive €1 billion between May 2011 and this autumn. Meanwhile, the fund for research into energy storage technologies promised the development of facilities in Germany to store energy created by wind turbines and solar panels to even out production fluctuations. The construction of such facilities is a key to becoming more reliant on unpredictable renewable energies.

A Refusal to Budge

The problems facing Europe's Emissions Trading System (ETS) have become acute, with low emissions prices hardly acting as the disincentive policymakers had hoped. Whereas prices per ton of CO2 emissions were at €30 in 2008, they plunged along with Europe's economy in the wake of the global financial crisis and ensuing euro crisis. In 2012, price for emissions certificates fell by more than one-third.

Proposals for fixing the system have been plentiful, but finding agreement has proven elusive. One particular plan, promoted by the European Commission, calls for the temporary removal of 900 million certificates to reduce supply as a way of boosting prices, a concept known as "backloading". European Climate Commissioner Connie Hedegaard has forcefully promoted the proposal, saying in January, "Something has to be done urgently. I can ... only appeal to the governments and the European Parliament to act responsibly."

With economies soft in many member states, however, parliament has proven unwilling to further burden European industry. And in Berlin, no consensus on the backloading plan has been found. Whereas Environment Minister Altmaier is in favor, Economy Minister Philipp Rösler, head of Merkel's junior coalition partners from the business-friendly Free Democrats, is opposed and refuses to budge.