Does Coal Have a Future? - "Coal Can Help Us to Accomplish the Energy Transition at Acceptable Costs"

Does Germany need to phase out both nuclear power and coal in order to achieve its CO2 reduction goals? This crucial question at the heart of the effort to transform Germany's energy economy has driven a wedge between policy-makers and the private sector. Climate scientists advocate reduced reliance on coal. However, Klaus Rennings, an expert in environmental economics at ZEW, argues it would be disadvantageous to turn our backs on coal over the short term. In fact, if we accept that Germany cannot save the climate on its own, domestic manufacturing of energy-efficient coal technology is economically sensible as a means of securing jobs and securing lucrative export markets.

Dr. Klaus Rennings is acting head of the ZEW Research Department "Environmental and Resource Economics, Environmental Management" and head of the research area "Innovation and Sustainable Development". His research deals first and foremost with innovation-oriented environmental policy, concepts for a green economy as well as the impacts of policy measures.

The coalition agreement of the current German government calls for a minimum 40 per cent reduction in CO₂ emissions by 2020 (in comparison to 1990 levels). The debate around this target is currently focused on whether old coal plants should be shut down. Is coal an energy source of the past?

The goal of a 40-per-cent reduction can be reached if appropriate measures are undertaken, including the setting of incentives for green technology investment and innovation. Companies should retain a large degree of freedom to select technologies as they see fit. Coal power plants cannot be banned per se. They remain a key source of energy, particularly in rapidly growing emerging economies such as China and India. Current forecasts see coal remaining a core element of the energy mix in coming decades. Coal power can be exploited as a highly efficient bridge technology that eases the transition to a green energy economy. Over a limited timeframe coal can make a valuable contribution to climate protection.

According to critics, coal power plants are filthy polluters in terms of CO₂ emissions per kilowatt-hour. How can coal help to protect the climate?

Coal can be beneficial to the climate when modern coal plants are built to replace older facilities that release higher emissions. Globally, security of supply and affordability play an important role, particularly in developing and emerging economies. Both of these topics are being discussed in Germany in connection with the energy transition. Many poorer countries will wait until Germany is able to master the challenges of transitioning to a green energy economy before they follow a similar developmental path. We need to do our homework first, and ensure that the energy transition is economically successful. The long-term use of coal is economically as well as ecologically rational. The production costs of coal power are low. Furthermore, Germany has developed a clear innovative edge over past decades in the market for energy-efficient coal technologies (e.g. for ultra-supercritical power plants); abandoning this innovative edge in an overly hasty manner would be a mistake. This innovative edge also has benefits for renewable energy.

You mean that photovoltaic technology can learn from coal?

Yes. Over past decades we have developed extensive expertise in the area of environmentally friendly and energy-efficient power plant technologies. We are profiting from this expertise today. Together with Japan, Germany dominates the global market for high-tech power plant components such as turbines. In the international division of labour, China, by contrast, has specialized in the production of labour-intensive components. For this reason, China is the market leader for boilers of low and medium quality. The global division of labour for photovoltaic systems is similar. Solar modules are not high-tech products; accordingly, China dominates the global market. If Germany wants to have a competitive chance, its niche necessarily lies in system integration; German industry is already strong in this area. As an export nation, Germany should focus on its strengths.

What are the consequences for environmental policy?

Selective industrial policy is the issue here. Germany should focus on the stages in the value-creation chain in which German suppliers have a comparative advantage; building turbines for power plants is a good example. Policy-makers should accept this fact, and should not subsidize the production of solar modules in Germany. If subsidies are provided, then they should be for system integration.

Is the success of the energy transition thus dependent on whether German coal power plants can be exported abroad?

That is putting things too simply. However, coal can help us to accomplish the energy transition at acceptable costs. For the energy transition to be a success, we need to take the time that is needed to re-mold our energy system, and fossil fuels will certainly play a role in this process in the years ahead. If the energy transition fails economically, then a boomerang effect could result in the form of faltering public acceptance for the project.