A German election boost for carbon and renewables

There has been a range of commentary in the Australian press suggesting that Germany was about to turn its back on renewables and the EU emissions trading scheme because of exorbitant energy costs.

For the most part this was inspired by negative commentary on emission reduction policies by Merkel’s former junior coalition partner in the prior government, the FDP.

The FDP, whose ideological roots lie in minimising government involvement in the economy, was led by Philipp Roesler who was economy minister under the prior coalition government.

Roesler had publicly opposed plans to reflate EU carbon permit prices via holding back supply of permits, known as ‘backloading’. This was in prominent opposition to the environment minister, Peter Altmaier, who is a member of Merkel’s CDU/CSU party. While the European Parliament ultimately passed legislation in favour of backloading, it still required backing from member state governments via the European Council. Because the German government couldn’t reach an agreement on backloading, the proposal was on ice until after the German election.

In addition, Roesler argued for greater cuts to renewable energy subsidies than proposed by Altmaier, insisting that the Renewable Energy Law required a radical overhaul.

In the end Roesler’s FDP had its worst election result since its foundation in 1948. Their share of vote, at 4.8 per cent, was so low that they won’t hold a single seat in the national parliament. Roesler has subsequently resigned accepting the blame for a result he described as “the bitterest, saddest hour of the Free Democratic Party”.

Meanwhile, Merkel’s CDU/CSU had an extraordinarily successful result but will still need to enter into coalition with another party. Speculation is that this will be with either the Greens (8.4 per cent of vote) or the centre-left Social-Democrats, or SPD, (26 per cent). 

Bloomberg New Energy Finance head of EU policy analysis, Anna Czajkowska, noted:

However, Czajkowska did feel that some cuts were "inevitable" to contain the costs of renewable support, expected to be €20.4 billion this year. Yet she added: “...with the SPD or the Greens in the coalition, the cuts are likely to be milder and offshore wind in particular may see some more favourable moves.”

Konrad Hanschmidt, head of carbon market analysis at BNEF, noted that the poor result for the FDP “boosts hopes” of the backloading proposal succeeding. In addition, Hanschmidt said he felt all the potential coalition partners would back more fundamental reforms of the ETS that would address the major long-term oversupply of European carbon permits.