Green MashUP: Germany – how to tax energy, go green and pump up the economy
Leon Gettler | 25 November 2014
Germany charges high energy taxes but produces low energy costs. And the behaviour change its policies have stimulated, prompted by rising energy prices, have actually strengthened the German economy. How did they do it?
The recent encounter with German chancellor Angela Merkel at the G20 showed us how different Australia is from Germany when it comes to sustainability and climate change. As reported here, Merkel added to international calls on Australia to reveal its plans for cutting greenhouse gas emissions, telling an audience in Sydney that climate change “won’t stop at the Pacific Islands”. Merkel told a sold-out Lowy Institute event in Sydney that global warming would have “catastrophic” consequences if left unchecked. Think of the extreme weather, she said.
The German leader also pressed Australia to reveal its post-2020 goal for cutting carbon emissions “by the first quarter [of 2015] at the very latest”, to give time for the UN’s Paris Summit at the end of next year to secure binding emission cuts from all states. So far, the Abbott government has only said it would reveal its post-2020 goal next year.
Merkel, more than most other politicians, is right across climate change. A former environment minister who chaired the 1995 UN climate summit in Berlin, Merkel says climate change would be a central part of Germany’s G7 presidency next year. Whereas Australia’s politicians duck and weave on climate change after the hammering the carbon price got in the last election, Angela Merkel is one of the world’s few politicians who campaigns on climate politics. She can only be German.
Germany has become a green leader. It puts Australia to shame.
According to the International Business Times, the 2013 S&P Dow Jones Sustainability Indices Review shows us that Germany has more industry-leading sustainable companies than the United States, Britain and Japan combined. In five sectors – autos, capital goods, household products, insurance and software – publicly traded firms based in Germany dominated the 24-sector list compiled by S&P Dow Jones Indices and RobecoSAM AG. The firms, respectively, were Volkswagen, Siemens, Henkel AG & Co, Allianz and SAP.
According to the New York Times, Germans will soon be getting 30 per cent of their power from renewable energy sources. Many smaller countries are beating that, but Germany is by far the largest industrial power to reach that level in the modern era. It is more than twice the percentage in the United States.
How does it do this? Why Germany? A lot of it has to do with commitment and government policies, on both sides of the political fence.
Germany has a dominant market share in green technologies and a significant proportion of its workforce is employed in the environmental sector. The result: its greenhouse gas emissions have fallen in absolute terms, despite the country being the European Union’s only growth engine. Power production from renewables has tripled in Germany within the past decade, mostly from wind and solar. Last year, renewables accounted for 24 per cent of the country’s electricity. The German government introduced generous subsidies to kick-start the sector, amounting to 16 billion euros last year.
One reason for the success was the country’s Renewable Energy Act of 2000. That piece of legislation was updated this year and extends the targets for the generation of electric power from renewable energy sources. The share of the energy generated from renewable energy has to increase from 40 to 45 per cent until 2026, from 55 to 60 per cent until 2035 and to 80 per cent until 2050.
One agency driving the solar energy boom there is Germany’s Fraunhofer Institute for Solar Energy Systems. Based in Freiburg, the institute does research on how to make solar energy less expensive and integrate it into the overall energy supply. The research looks at solar energy not just for electricity but also for heating and cooling. The Fraunhofer is the largest solar energy research in Europe, employing 1100 staff. The institute also looks at other photovoltaic technologies such as organic and pigment cells.
Then there is the German Environmental Management Association, BAUM Europe’s largest environmental initiative in the business sector. It is committed to the principle of sustainable business practices and helps companies, municipal authorities, and organisations to implement associated measures. Its 500 members include Bosch, Adidas, Siemens Appliances, and Deutsche Telekom. Every year, it awards one of Europe’s most prestigious environmental prizes to companies, scientific organisations, politicians and private individuals who have had some outstanding achievement in regards to climate protection. It has a database show the wide range of ways members companies have reduced carbon emissions. It even runs an annual competition for the most “bike-friendly” employer.
Another impressive initiative is the Alpha Ventus Wind Park, Germany’s first offshore wind farm. The facility is located 45 kilometres north of Borkum island in the North Sea. It was created to boost the development of offshore wind energy in Germany. It comprises 12 turbines that will together generate 60MW. The farm is capable of powering 50,000 households. The power generated by Alpha Ventus is transmitted to Germany’s national grid. The Alpha Ventus consortium DOTI comprises companies of EWE, E.ON and Vattenfall. According to Windpower Monthly, the Alpha Ventus has one of the biggest turbines in the world, the Areva 5000 coming in at a whopping 136 metres. The rule is the larger the turbine, the greener the electricity.
Germany is such a leader in renewables that an Australian company that invented a renewable energy electricity generator says it was forced to move its operation to Germany because of a lack of opportunities in Australia. Ceramic Fuel Cells, a Melbourne-based CSIRO spin-off company, says its generator could cut electricity bills by up to 50 per cent of households and small businesses. But the company told the ABC it moved its operations to Germany two years ago to benefit from generous German government subsidies not on offer in Australia.
One way Germany has been able to do this is by having an energy policy mix that utilises energy taxation. Anyone who has spent time in Germany would realise very quickly that petrol prices are significantly higher than in most other regions: in early 2011, a gallon of regular petrol cost over US$7, more than double the average price in the US. The price difference is almost entirely due to higher tax rates on oil and other fuels. It’s a system of excise taxes that dates back to pre-war Germany and has since been harmonised at the European level.
Energy taxation became a vehicle for Germany’s green agenda in the 1990s. In 1998, a centre-left coalition of Social Democrats and Green Party members pledged to introduce new fiscal instruments to reduce the tax burden on labour and shift part of it to energy consumption. In 1999, the German legislature passed the Ecological Tax Reform Act, which mandated gradual increases in the tax rates on oil and gas and introduced a new levy on electricity. As with the carbon tax, this initiative encountered public opposition. Resistance to this measure was, in fact, so great that many observers expected the energy tax project to be a casualty of partisan politics.
It’s not surprising then that Germans pay 50 per cent more for power than the rest of Europe. So how do German politicians achieve that? It’s an important question given Australia’s track record on climate.
Writing in Al Jazeera, assistant professor in urban affairs and planning at Virginia Tech Ralph Buehler says the tax mix has been critical in Germany, because eventually, the conservatives adopted it. Governments on both sides of politics now recognise it as a valuable money-spinner and they’ve made sure they can sell it to the public.
Buehler writes: “Ironically, the need to close a growing budget deficit has made the current conservative government, previously an ardent adversary of environmentally motivated taxes, now dependent on the revenue created by the energy tax. As the rationale and benefits of the tax reform have become more widely known, there has been greater public acceptance of the incremental increase in energy cost. It stands to reason that better communication in the initial stages of the tax reform could have alleviated some of the early concerns.
“Ultimately, however, the positive outcome of the tax reform is the most compelling lesson from the German experience: contrary to the early fears, behavioural change and innovation prompted by the rising energy prices have actually strengthened the German economy. Energy-efficient technologies are now among the fastest-growing export products and the incentive to reduce energy use has helped the German economy become more resilient to fluctuations in global oil and gas prices.
High energy taxes, but overall low costs
“Overall, greater efficiency throughout the economy has translated into lower energy costs for households and industry. Despite significantly higher energy tax rates, average German utility bills and fuel expenditures tend to match or lie below those seen in the United States. As the Federal Environmental Agency has concluded, the Ecological Tax Reform Act delivered on its promise of improved labour conditions and greater sustainability, resulting in what the agency describes – in a typically German understatement – as a “positive macroeconomic balance”.
Specialists at Wharton say one of the main reasons why Germany is so green is because the government created some simple but generous incentives for companies to produce electricity through means such as solar power or wind. By requiring electric utilities to buy power produced by the alternative producers at a set price, the government effectively guarantees a long-term set return for alternative energy production. Rather than being captive to outrageous commodity prices — profiting when fuel prices are high and losing revenues when they fall — this German approach provides a floor price that makes it possible for alternative energy businesses to plan for the future.
Also, Germany’s leading-edge regulations against pollution have led German companies to develop expertise and technology that they can sell to businesses in countries that are just adopting tougher regulations
And finally, renewable energy industries play to Germany’s strengths in engineering and physical technologies. Clean tech after all depends on Germany’s traditional command of chemistry, physics and precision instruments.
Can Australia be anything like Germany? It’s unlikely given the current political environment, but it could draw lessons from Germany and build on its own strengths in renewable energy production, with its wide open spaces, and lots of sun and wind.