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31 January 2020

Phas­ing out coal to ful­fil cli­mate tar­gets

On 29 January 2020, the German cabinet adopted draft legislation on the phasing out of coal in Germany. The bill sets out a detailed roadmap for shutting down coal-fired power stations, which are harmful to the climate. The Federation has allocated €40bn for the structural transformation. The funds will help the affected regions to build new capacity and create new jobs.

A street, houses and a forest

Germany is the first industrialised country that is phasing out both nuclear- and coal-powered electricity generation and making renewable energies central to its future energy supply. Phasing out coal will massively reduce Germany’s greenhouse gas emissions in the coming years. The roadmap for phasing out coal-fired electricity generation, which was agreed by the Federation and the Länder, is based on recommendations from the government’s expert commission for growth, structural change and employment. The roadmap sends a signal to the public and to businesses in Germany’s coal-mining regions that the social consequences of the phase-out will be mitigated and that new economic prospects will be created.

The Federation and the Länder plan to reach an agreement in late spring 2020 on implementing legislation to achieve positive structural change in the affected regions (Strukturstärkungsgesetz Kohleregionen). It is undeniable that coal and coal-fired electricity production still plays an important economic role in some regions today. These regions, and the workers and businesses located there, face special challenges. The political decision to end coal-fired electricity production entails a special responsibility towards the people and regions affected. For this reason, the workers and the coal-mining regions will receive financial support to enable the creation of new economic structures offering well-paid jobs. The German federal government is creating a solution that balances a comprehensive set of economic, labour-related and environmental aspects: it achieves a fair balance between the interests of eastern and western Germany, and between the interests of areas with power stations and coal-mining regions, on the one hand, and ambitious climate policies on the other.

The Federation and Länder have agreed on the following specific measures:

  • Clear phase-out pathway for lignite: Lignite-fired power stations will be successively taken offline in the coming years, beginning in 2020 with the plants that emit the most CO2.
  • Step-by-step reduction in coal-fired electricity production: Between 2020 and 2026, invitations to tender will be held for companies that wish to shut down coal-fired power plants in exchange for compensation. The compensation amounts will be kept as low as possible. Between 2027 and 2038, the remaining coal-fired power plants will be shut down on a mandatory legal basis, without compensation being paid. The phase-out pathways will be reviewed in detail in 2026 and 2029.
  • Mitigation of the social consequences of the phase-out: The coal sector is highly important for many people in the affected regions. The German government is therefore organising the phase-out in a clear and transparent fashion that allows individuals and businesses to plan ahead. Older workers, who are particularly affected by the structural change, will be paid an adjustment benefit until 2043. This is a similar arrangement to the one that already exists for coal mining. Workers affected by the structural change will also benefit from the Skills Development Opportunities Act (Qualifizierungschancengesetz), which came into effect in January 2019. The law provides for enhanced support for further training and allows workers to obtain new qualifications.
  • Federal support for coal-mining regions: The government’s climate policies will generate new economic momentum in many sectors, leading to the creation of new, well-paid jobs. It is key that new economic and social prospects be created in the regions most affected by the phase-out of coal so that these regions can derive particular benefit from this new momentum. In total, the federal government will make up to €40bn available by 2038 (including €14bn in financial assistance and a further €26bn from the budgets of the relevant federal ministries). These funds will be used for new railways and roads, new research facilities, new locations for federal agencies, and education and training, among many other measures.
  • Faster expansion of renewable energy: As part of a reform of the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz), measures will be adopted to further expand the use of wind and solar power. In parallel, support for the combined generation of heat and power will be enhanced. The goal of ensuring that 65% of electricity is generated by renewable resources by 2030 will be enshrined in law.
  • Compensation for lignite producers: Granting compensation to lignite producers creates legal certainty, so that the phasing-out of coal does not lead to unforeseeable legal risks. Originally, lignite producers had the right to extract lignite until the 2040s. The new roadmap provides for compensation payments because maintaining social consensus also involves compensating businesses for investments that they made on the basis of agreements that were in place at the time, but which have now been superseded. In return, the companies will refrain from laying off employees for operational reasons and from taking legal action against the federal government. This creates transparency and predictability for all stakeholders.
    and predictability for all stakeholders.