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6 September 2019

Germany is about to find out the real costs of coal closures for EU

The real cost of getting rid of fossil fuels across Europe may well be masked by years and years of future investment into previously job-rich coal mining and coal plant towns. The real cost of eliminating coal from Germany for instance has yet to be determined, but another €40 billion was added to the costs this week.

None of this is law yet, but the sharp minded German government, led by Angela Merkel, has drafted a plan which is designed to become law, but which a new government, at present, could always back away from. The law will push state aid of €40 billion over 5 years to four regions of Germany, two of which are in the old East Germany, the others in West Germany.

And two of those regions, Brandenburg and Saxony, are getting ready for regional elections. So the money is like a “bribe” sitting half on the statute books and half off, to see which way the voters jump. They can either vote for one of the emerging far right parties, which will of course immediately kill the German plan to close all coal plants by 2038, or voters can go for one of the parties in the current coalition – and get this bribe completed.

But so far, it is only half of the money. The German government will have to pay for the closure of the plants, and their financial partners who will suffer from an asset stranded by the policy of the government, and also pay the regions cash to stimulate the creation of more jobs – this second payment. At present none of these moves are irrevocable law, and neither is the law closing the coal plants down.

Renewable energy has plenty of reason to go after these funds – there have been multiple attempts to turn the coal fired power stations into molten salt, liquid air or solar renewables experiments, and over the next year or so these will mature and either come to fruition, or someone else will come up with a plan for evolving the sites towards renewables, which makes economic sense. The better job the renewables industry does, the less the German government will have to pay out on closures. Which in turn means it will have more money left to underwrite or subsidize renewables.

This is the pragmatic German way. The UK instead had the rather messy miners’ strike in the 1980s, which almost brought the country to a standstill, and France bypassed much of that with an early and consistent investment in nuclear. But other parts of the rest of Europe will go one of two ways.

Those in the North Sea one, like Norway and Denmark and the Netherlands, are advanced in wind energy and are transitioning naturally. Those in the southern states like Spain and Portugal have a better than average marketplace for solar, but those in the east risk reneging on their promises in the Paris accord, asking for massive handouts based on at least as much per job as the German market, or voting in a right wing climate change denier who says to hell with it.

The worst outcome is the one in the US, where private companies own coal plants, and President Trump promised to keep their jobs. His failure to do this, simply because none of the coal plants are economically viable, sees little in the way of recompense, and no job protection either. At least the US government has not had to shell out to these private firms over loss of income.

But in the EU, Poland and the Czech Republic and other parts of the east, will demand a similar offer to the German one of both regional job funding and recompense for closure, and the bill could end up being north of €500 billion. A failure to find that cash could mean right wing, anti-climate change, populist governments which would rather bankrupt their countries than close their coal plants.

The eyes of the EU will be on these elections to be clear whether nor not promises of regional funding work as an incentive to keep the current governments in power, or fail to work at staving off populism.