Europe pays for Germany’s nuclear ‘Nein danke!’
Posted on Friday, July 29th, 2011

First published in the New Scientist, 29 July 2011.

Europe’s energy consumers will find themselves paying a high price for Germany’s decision to get out of nuclear power.

FOR decades, Germany has had some of the most enlightened energy policies in Europe. It has long been admired for setting world-leading growth in wind and solar. But its decision to ditch nuclear by 2022 will set back efforts to decarbonise the electricity supply by 10 crucial years, and could prove expensive for every household in Europe.

Germany’s abrupt about-turn, like all decisions on nuclear, was highly political. Last year the government, headed by Angela Merkel, made the sensible but unpopular decision to extend the life of Germany’s nuclear plants to 2036 as a “bridge technology” towards “the age of renewable energy”. But after the disaster at the Fukushima Daiichi nuclear plant in Japan, public hostility intensified and Merkel retreated. The U-turn may help her in the 2013 federal elections but it is a major reversal for the climate.

Around 23 per cent of Germany’s electricity comes from nuclear and 17 per cent from renewables. That’s a 40 per cent share for zero-carbon in total – one of the highest in the European Union.

The German government has admirable plans to raise renewable electricity to 35 per cent of consumption by 2020. But even this planned increase falls 5 per cent short of filling the hole in zero-carbon electricity left by abandoning nuclear.

How will Germany fill that hole? With coal and other fossil fuels. It has plans to build 20 gigawatts of fossil-fuel power stations by 2020, including 9 gigawatts of coal by 2013. The government now describes fossil-fuel power stations – apparently without irony – as “the new bridging technology”. Some of this may never be fitted with carbon capture and storage because German environmental campaigners don’t like this technology either.

So it looks as though by the end of the decade Germany will at best have about the same amount of zero-carbon generation as today – 40 per cent – and probably less. Had Germany retained its nuclear capacity and achieved its renewables target, the zero-carbon share would have been 58 per cent. We are told this decade is crucial for our emissions reduction trajectory. For Germany it will be a lost decade during which emissions from its electricity generation are likely to rise.

Trevor Sikorski, head of environmental market research at London investment bank Barclays Capital, calculates that Germany will emit an extra 300 million tonnes of carbon dioxide between now and 2020. That is more than the annual emissions of Italy and Spain combined under the EU’s emissions trading scheme (ETS).

Anti-nuclear campaigners have argued that the market will come to the rescue: the permits that enterprises must buy to be allowed to emit carbon will become more expensive, encouraging emissions savings elsewhere. But this argument is hard to support, certainly in the short term.

To start with, the price of carbon permits has slumped since Germany announced its nuclear policy in early June. Sikorski says the price will rise as German utilities are forced to buy more permits to cover their increased emissions, but not by enough to impel matching reductions elsewhere. That’s because there are still far more permits in circulation than carbon being emitted, for which the recession is only partly to blame.

In the longer term, the carbon market may well do its job – but at a price to all of us.

The outcome depends critically on the success or failure of the EU’s new Energy Efficiency Directive. This calls for energy companies to implement efficiency measures that will reduce the amount of energy they supply by 1.5 per cent per year. This could cut emissions by 335 million tonnes by 2020.

Barclays Capital estimates that if the efficiency drive works, the trading system will still have surplus permits in 2020. But efficiency gains are notoriously difficult to sustain across an entire economy because of economic growth and the “rebound effect”, where greater efficiency leads to even greater consumption. For instance, improved insulation makes it cheaper to heat a house, encouraging residents to turn up the thermostat and consume more gas.

But if Europe fails to cut emissions by raising efficiency, by 2020 the trading system will have a shortage of permits equivalent to 120 million tonnes of carbon, according to Barclays Capital. If so, on the basis of today’s fossil fuel prices the carbon price would be forced up to €70 per tonne.

It is then that the supporters of the German nuclear shutdown may wish to reconsider. Had Germany kept its reactors going, the ETS would have had surplus allowances even without the efficiency savings. “Germany will make it more expensive for everybody else. They are requiring a market price to be higher to meet the same reduction target,” says Sikorski.

Even if the efficiency target is achieved, Europe will still have a price to pay. As things stand, the trading system would then have some 200 million tonnes in surplus allowances. Had the German reactors continued to generate, the surplus would have been some 500 million tonnes, meaning carbon prices and energy bills would be significantly lower. “Prices will be higher under any scenario than if Germany had kept its nuclear plants running,” says Sikorski. “We are all going to have to pay more for our power.”

It is widely agreed the cost of carbon is too low and needs to rise to spur more abatement. But the effect of the German decision is to raise unnecessarily the cost of achieving existing targets.

And let’s not forget the climate. If EU members do somehow succeed in reducing emission by 335 million tonnes through energy efficiency, all that effort will almost entirely be negated by Germany’s additional 300 million tonnes.

Thank you, Mrs Merkel.

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