POSITION PAPER

CAN Europe welcomes the Commission’s decision to start a formal investigation into
Germany’s promised compensations to the lignite operators RWE and LEAG for closing their
power plants. We are in the opinion that the amount of compensations and the foreseen
date of closures do not reflect reality, and an approval of these unrealistic measures risk
setting a bad example for other EU Member States’ ongoing coal phase out discussions,
potentially resulting in closure dates that are not compatible with the Paris climate
agreement and European Green Deal objectives. The decision by the Commission on the
German lignite case will send a clear message either in favour of climate protection or in
favour of the fossil fuel industry. At the end of 2020, DG Competition kicked off a process to
align competition rules with the European Green Deal. We believe that this should concern
the whole State aid practice and rules, including case-by-case assesments of aid for coal
closure.

Here below are the main points we would like to bring the Commission’s attention to when
investigating the case. These points are followed by more technical and detailed background
with additional comments.

  1. No state aid should incentivise business as usual.

No subsidies should be paid to fossil fuel companies for operating; and nothing more than what is minimum required by EU State aid law for closing the plants. The coal industry is making losses faster than expected and any State aid would only compensate for lignite power plant operators’ bad business decisions to keep relying on coal.

A direct impact of the current EU ETS price[1] is that it almost halves the profitability of modern lignite-fired power plants in Germany beyond 2024[2], leading to almost half of the country’s lignite fleet losing cash based on current expectations. The proposed revision of the EU Emissions Trading System in response to the EU’s new emissions reduction target might lead to a “possible price of €130 per ton of CO2 in 2030[3]” which could be sufficient for the market dynamics to shutter the coal plants.

  1. A coal phase-out by 2030 without further compensation.

The phase-out date of 2038 is not in line with the EU’s commitments under the Paris Agreement, which require a coal phase-out by 2030. According to the contract with lignite operators, the phase-out can only be accelerated without further compensation under strict conditions and until 2035, otherwise operators have the right to renegotiate the contract. This is a major hurdle for the ambitious policy needed in the face of the global climate crisis, and contradicts with the EU 2030 climate target and 2050 climate neutrality objective.

A recent decision by the German Constitutional Court supported the need for an earlier coal phase out date by ruling that the country must make deeper emission cuts in the next decade in order not to ‘shift the climate burden of making painful reductions to future generations’[4]. This means a 2038 coal phase out date for Germany is too late, as the energy and industry sectors generate the highest amount of CO2 emissions. German legislators are obliged by the Court to revise the Federal Climate Change Act by the end of 2022, in order to make deeper emission cuts which will directly impact plans for coal phase out.

  1. Adherence to the polluter pays principle.

The Commission must assess whether Germany has enforced the polluter pays principle before agreeing on any amount of compensation, in particular for the recultivation of lignite mines and recovering water pollution costs (e.g. sulphates pollution). Moreover, the German government must implement the strict levels of the Best Available Techniques Conclusions on Large Combustion Plants, including binding energy efficiency performance. This is reinforced by the Hinkley Point C ruling[5] requiring that the Commission checks compliance of activities with environmental law and principles as a condition for approving State aid.

  1. Meaningful allocation of money and just transition.

Financial resources must be allocated to more sustainable uses that are meaningful in the European Green Deal framework – this includes ensuring that the affected communities in coal regions are supported for a just transition to low-carbon local economies. Germany could have decided that the communities were first to be compensated for all the pollution, displacement and other external impacts of coal plants and mines, as well as for their just transition, before compensating the utilities.

  1. Transparency.

According to the government, the compensation sums are made up of lost profits, recultivation costs, and a legal disputes waiver – though it remains unclear which amount is paid for which item and whether the result is based on a formula. A financial study[6] commissioned by the German government on the recultivation costs was only disclosed several months after the Bundestag voted on the law. The study shows that the sums are not proportionate to the recultivation costs particularly regarding the operator LEAG.

  1. Commitment to the European Green Deal.

The climate neutrality, zero pollution and just transition objectives of the Green Deal and of the EU Climate Law must play a significant role in State aid decisions – as an integral element of the sustainable functioning of the internal market.

[1]  50 Euros/ton in the week of 4 May 2021

[2] https://www.argusmedia.com/en/news/2195015-modern-german-lignite-plant-margins-halve-from-2024?utm_campaign=Oktopost-free-news-coal&utm_content=Oktopost-twitter&utm_medium=social&utm_source=twitter&utm_term=coal

[3] https://www.sciencedirect.com/science/article/pii/S0306261921003962

[4]https://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/DE/2021/03/rs20210324_1bvr265618.html;jsessionid=77DB9650A66A447904AC49A056A4A56C.1_cid386

[5] https://www.clientearth.org/latest/press-office/press/ngos-win-right-to-take-eu-commission-to-court-over-environment-harming-subsidies/

[6] https://www.bet-energie.de/fileadmin/redaktion/PDF/Studien_und_Gutachten/Gutachten_Folgekosten/Gutachten_Folgekosten_Braunkohleausstieg_Abschlussbericht.pdf

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