Market News

 September 24, 2013
German voters follow Merkel down bumpy path to clean energy

 High electricity costs didn't stop German voters from reelecting a leader who has moved the country along an ambitious and costly path toward a post-carbon future.

German Chancellor Angela Merkel was voted in for a third term Sunday, quieting critics who say she has pushed too hard for clean energy at the expense of everyday consumers. Germany's energy transition, or Energiewende, is widely popular among Germans, which has made it difficult for opposing parties to challenge Chancellor Merkel on energy policy.

It's highly likely the chancellor will continue to push for a transition away from nuclear and fossil fuel power, but even Merkel admits something must be done about ballooning energy costs. What she does or doesn't do to rein in those costs will depend on German politics and European economics.

"There is definitely no turning back," said Mihaela Carstei, deputy director for the energy and environment program at the Atlantic Council, a global think tank based in Washington. "There is a deep cultural difference in Germany where they do see renewables and carbon-free energy being their future."

Germany's push for renewables dates back as far as the 1980s, but Merkel shifted the Energiewende into high gear after the March 2011 Fukushima nuclear disaster in Japan stirred anti-nuclear sentiment across the country. The goal is to phase out nuclear power by 2022 and raise the percentage of renewables in the electricity mix to 35 percent by 2020 and 80 percent by 2050. Last year, renewables made up 23 percent of Germany's electricity mix. The plan is expected to cost $735 billion, according to government estimates.

That financial burden falls primarily on residential energy users who pay a surcharge to subsidize renewable power. It's why Germans pay as much as 30 percent more than other Europeans for their electricity. Major industries are partially protected from these tariffs, but there is still a fear that added energy costs are hurting German businesses.

"There's a growing consensus that this has to be solved," said Georg Mascolo, a public policy scholar at the Woodrow Wilson International Center for Scholars, a Washington think tank, and former editor in chief of Der Spiegel, a German weekly news magazine. "There are industries deciding or at least talking about moving factories out of Germany, so this is of utmost importance," Mr. Mascolo said in a telephone interview.

Despite all the effort, greenhouse gas emissions actually rose 1.6 percent in Germany last year, according to Germany's Federal Environment Agency. That's largely due to an increased use of coal-fired power -- a trend that has fueled criticism of a program that aims to do the opposite.

But incremental short-term shifts in the electricity mix belie a complex and long-term issue, according to Kristine Berzins, program officer for energy and society at the German Marshall Fund of the United States, a transatlantic nonprofit headquartered in Washington.

"The picture is more complicated than simply nuclear versus coal versus renewables," Ms. Berzins said in a telephone interview. "Global energy trends have a lot to do with it."

Europe's economic struggles have caused a collapse in the price of carbon credits in the EU Emissions Trading Scheme, Berzins said. A US shift toward natural gas means American coal companies are eager to sell the carbon-heavy fuel to Europe. Those trends have encouraged coal use in Germany and elsewhere in Europe.

Despite these shortcomings, Energiewende was a nonissue in this year's election, analysts said. Merkel will push forward with the transition, but will likely have to reorganize and tweak what many criticized as a mismanaged and inefficient effort. Because Merkel did not win a majority, alterations to her energy policies will largely depend on the party with which she forges a coalition. Germany's Green Party wants a stronger push for renewables, Ms. Carstei said in a phone interview, while a coalition with the center-left Social Democratic Party might give Merkel a bit of breathing room.

Either way, the fate of Germany's experiment in clean-energy economics will have broad repercussions for other major, wealthy economies with similar aspirations.

"If they can make this transition successfully, and maintain a strong economy, that would be very exciting," Carstei said. "At the same time, a big failure would give good arguments to those who are not as excited about moving towards a low-carbon economy."