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Climate change

Based on the global trend of decarbonisation, international and European law have had great influence on German climate protection regulations. In 2010, the German federal government decided to reduce greenhouse gas emissions by 80 to 95 per cent compared to 1990 by 2050. On a policy level, on 14 November 2016 the German federal government adopted the Climate Action Plan 2050 following a broad and controversial political and social debate. The plan outlines how Germany intends to achieve extensive greenhouse gas neutrality by the middle of the century. However, an independent discipline of climate protection law is still being developed in Germany. Accordingly, climate protection is not comprehensively regulated, at least not yet. Several environmental laws have rather identified climate protection as an objective of the relevant legislation and either aim to reduce greenhouse gas emissions, improve energy efficiency or promote renewable energies to facilitate and protect that objective.

i Climate Action Plan 2050

The Climate Action Plan 2050 defines a number of key areas for specific action (i.e., energy, building, transport, trade and industry, and agriculture and forestry) with both guiding principles until 2050 and milestones and targets for 2030.

For the first time, the Climate Action Plan 2050 sets sectoral targets for emissions reduction that will be monitored and adapted in the future.

The Climate Action Plan 2050 has so far not specified how these aims will be achieved. To this end, the federal government on 6 June 2018 established a commission for growth, structural change and employment (the Coal Commission) to integrate the expertise of the governments of the federal states as well as the municipalities, trade unions, company and industry experts. This commission will develop annual action programmes to specify the milestones and targets of the Climate Action Plan 2050.

In general, the Climate Action Plan 2050 aims to further develop energy standards in both new buildings and existing stock undergoing renovation, as well as the promotion of heating systems based on renewable energy sources. Road transport will have to take electric mobility into account in particular. The German government and businesses must work together regarding research and development programmes to reduce greenhouse gas emissions. Expanding forest areas and improving regulations for fertilisation are further measures. Regarding the energy industry, it remains a goal of the federal government to completely decarbonise electricity production by 2050. Meanwhile, the Coal Commission has suggested starting the decommissioning of the first coal fired power plants between 2019 and 2022.

ii Greenhouse gas emission allowance trading system

The reduction of greenhouse emissions is primarily achieved by means of the TEHG. Under these regulations, an installation emitting greenhouse gases from activities listed in Annex 1 TEHG requires a greenhouse gas emissions permit. This particularly concerns conventional power generation and other industrial activities, such as the production of cement clinker and lime or dolomite in rotary kilns or other furnaces with a certain production amount, but also air traffic. If a permit in terms of the BImSchG has been issued prior to 1 January 2013, this permit also constitutes the required emission permit. Otherwise, a separate emissions permit is required.

Operators of emitting installations have to cover their actual greenhouse gas emissions by emissions certificates. These allowances are issued as tradable rights so that the beneficiary may either sell surplus allowances or obtain additional allowances if required. For the third emissions trading period from 2013 to 2020, the allocation of emissions allowances is subject to the Allocation Ordinance 2020. Compared to the previous two trading periods, this ordinance has reduced the general national cap for emission allowances as well as the number of emission allowances allocated to the operators free of charge; the number of auctioned allowances has generally increased. In the energy sector, all allowances have been auctioned since 2013.

On 4 October 2018, the federal government adopted a bill to align the TEHG with the revised requirements of the EU Emissions Trading Directive for the fourth emissions trading period from 2021 to 2030. The overall number of emission allowances will further decline at an annual rate of 2.2 per cent from 2021 onwards, compared to 1.74 per cent currently.

Emission allowances have to correspond to an annual emission report, which must be submitted by the operators to the competent authority by 31 March of each year. If an operator exceeds the annual volume of emissions contained in the allowances and fails to buy the required additional volume, a fine of €100 per tonne of greenhouse gas emitted will be imposed on him or her and his or her name will be published accordingly.

Part of the efforts to reduce greenhouse gas emissions in the energy sector is also the recently effected transfer of specific lignite power plants into a remunerated reserve position for four years, followed by the final shutdown of operations under the revised EnWG.

iii Promotion of renewable energy sources

Greenhouse gas emissions, in particular in the energy sector, are indirectly being reduced by the promotion of electricity production from renewable energy sources. In recent years, the renewables share within the overall production of electricity in Germany has increased to approximately 33.3 per cent in 2017 and is envisaged to further increase to 40 to 45 per cent in 2025, 55 to 60 per cent in 2035 and at least 80 per cent in 2050.

In Germany, different statutory support mechanisms have been in place since 1991. Since 2000, the applicable regulations have been set out in the EEG. The type and amount of support generally depend on the time the installation first commenced operation and the type of renewable energy. Although the promotion system has been changed constantly, the applicable legal framework for a renewable energy installation is being grandfathered for a period of 20 calendar years plus the year in which the installation was commissioned. By consequence, different promotion systems apply to different installations. However, there are four main types of promotion schemes: fixed feed-in tariffs, voluntary direct marketing with market premium, mandatory direct marketing with market premium and tender procedures with a 'pay-as-bid' remuneration.

Until 2012, fixed feed-in tariffs were the only applicable statutory support scheme. These tariffs are paid to the operators of the installation by the connecting grid operators and ultimately charged to the end customers in form of the EEG levy. Beginning with the EEG 2012, operators of RES installations can also opt to sell their electricity directly to third parties. Any shortfall of the technology specific market values compared to the statutory feed-in tariffs is compensated through a market premium. While direct marketing was optional under the EEG 2012 and remains optional for existing installations, it became mandatory for most new installations under the EEG 2014 in order to facilitate further integration of renewable energies into the electricity market. Finally, under the EEG 2017, funding for certain installations is no longer based on fixed statutory tariffs since 1 January 2017, but rather subject to an auctioning system resulting in a 'pay-as-bid' remuneration. The federal government recently decided to publish additional invitations for tenders amounting to 4 gigawatts of solar energy systems and 4 gigawatts for onshore wind installations up to the end of 2021.

The promotion of offshore wind installations is regulated separately in the Wind Offshore Act, which prescribes two auction procedures in 2017/2018 for an interim period for installations commencing operation between 2021 and 2025. Each auction covers capacities of 1550MW. As of 2021, annual auctions will be held for projects commencing operations from 2026 onwards. In this Danish model, the competent authority will determine and pre-evaluate specific areas for offshore wind farms, and bidders will compete in the auction for the right to construct an offshore wind farm in the designated areas.

In addition to the EEG, the Act on the Promotion of Renewable Energies in the Heat Sector promotes the use of renewable energy sources for the production of heat also with the aim of reducing the use of fossil fuels. The promotion is mainly in the form of obligations to use renewable energy sources in new houses and – depending on the laws of the federal states – also in existing buildings. Such use is also partly state funded.

In the transport fuel sector, the use of renewable energy in the form of biofuels is promoted by tax allowances and a mandatory marketing quota of biofuels for oil companies under the BImSchG.

iv Energy efficiency regulations

Energy efficiency is another way of indirectly reducing greenhouse gas emissions. An important part of energy efficiency is the utilisation of heat generated in the regular process of electricity production via the promotion of CHP installations. Whereas CHP based on renewable energies is promoted under the EEG, CHP based on fossil fuels is promoted by the KWKG. Operators of CHP plants receive a bonus on their electricity production per kWh, which is ultimately charged to the end customers in form of the KWKG levy.

Under a recently published new bill, the promotion for CHP is going to decrease in the future. Existing CHP plants with an electrical power of more than 300MW will not receive any more funding from the year 2018 onwards. Existing installations with electrical power exceeding 50 MW will receive lower funding compared to the 1.5 ct/kWh currently applicable under the KWKG.

The Act on Economisation of Energy and the Ordinance on Economisation of Energy prescribe energy-saving construction of buildings and energy-saving operations. The Act on Energy Efficiency Labelling and the Ordinance on Energy Efficiency Labelling require information on the energy consumption of the specific product. The Energy-related Products Act prescribes an eco-friendly design for energy-using products as well as products influencing the energy use of other products. The federal government is currently preparing a bill on 'building energy'. The bill requires all publicly owned and used (non-resident) buildings to be constructed as nearly zero-energy buildings from 1 January 2019. This requirement will apply to all newly constructed buildings as of 1 January 2021.

v Climate protection on the level of the federal states

Based on the international, European and national regulations regarding climate protection, several of the German federal states have adopted climate protection plans and some have also adopted climate protection acts, such as the Climate Protection Act North Rhine-Westphalia. Under this Act, greenhouse gas emissions in North Rhine-Westphalia shall be reduced by at least 80 per cent until 2050 compared to the year 1990. The related climate protection plan of North Rhine-Westphalia includes 220 specific measures to implement this goal.