The Coal Commission’s phase-out proposal includes a €40 billion federal spending package for affected states.

A German government-appointed body, known colloquially as the “Coal Commission”, has agreed to end coal-fired power generation by 2038. In an effort to meet Germany’s climate goals under the Paris Agreement, the Coal Commission proposes to gradually reduce Germany’s current coal power capacity of 42.6 GW to 30 GW by 2022 and 17 GW in 2030. A review is scheduled in 2032 to decide whether to bring forward the final phase-out from 2038 to 2035.

Coal-burning provided for 40% of Germany’s power mix in 2017, which is well above the EU-28 average of 21% in 2016, and was exceeded only by Bulgaria (45%), Greece (46%), the Czech Republic (54%), and Poland (81%). Coal-fired power plants accounted for 28% of Germany’s total CO2 emissions in 2016, while generating 70% of the energy sector’s total emissions in the same year. Germany will also close its last nuclear plants in 2022, which, as of 2017, still provided for 12% of the power mix. All considered, the country will see a fundamental change in its energy production landscape in the coming years.

The phase-out of coal-fired power generation has been a highly controversial issue in Germany. While supporters of the phase-out denounce coal as the dirtiest of fossil fuels and the most significant climate polluter, opponents highlight the hardships that will affect traditional coal mining regions and current sites of coal-burning power plants, including the loss of tens of thousands of jobs. The Coal Commission’s proposal provides for 40 billion of federal funding to the affected states to finance the necessary structural transformation of regional economies. Utilities likely will also be entitled to compensation based on the accelerated shutdown of their respective power plants.

The Coal Commission, whose members include representatives from industry, science, environmental NGOs, trade unions, and affected regions, as well as politicians, was established to negotiate a package with wide-reaching support in society. While the Commission’s report still needs to be transformed into legislative acts, there is a general belief that the deal the report presents will receive cross-party support in the German parliament.

The dual phase-out of coal and nuclear power will have a significant impact on the German energy sector. While many existing coal power plants will have to shut down before the regular end of their life cycle, the demand for renewable energies and new backup power solutions such as energy storage facilities and gas power plants will increase. The new energy mix will also require a substantial modification of the German power grid. These market shifts, as well as the structural transformation of the affected regions, will provide major investment opportunities to shape the course of Germany’s energy transition. Latham will continue to monitor and report on subsequent developments.