ELS #Energy - Bitter Pills for Many as Germany set to Promote Natural Gas as “Middle Way”

Natural gas will seep through under the radar as ambitious German climate targets come up against serial under-achievement and a lack of alternative national pathways, in this autumn’s important negotiations on tightened EU climate regulations. That will pit German interests further against French and Nordic interests in general, where de-fossilisation is a priority and is starting to produce results.

With the kingmaker role split on two parties, the Greens and business-friendly FDP, after the election, natural gas looks set to benefit on the EU scene in a way many outside Germany could find surprising. The reason is a mix of Germany’s failure to get wind power expansion back on track and the the balancing role for the electricity system which coal-fired power has held in the last decade.

Coal is now set to be phased out, as the nuclear phase-out is completed next year. But this will take until 2038. The Greens have been pushing for a faster coal phase-out to 2030, but with wind barely growing at half the speed identified as necessary for reaching Paris Agreement compliance in the long term, what is the alternative?
Especially given historically high energy prices this autumn – which will continue through winter and spring 2022 – all the other parties will be careful not to tighten markets further.

The main battle between the FDP and the Green Party is likely to be over car emission limits, Germany’s support for a European Carbon Emission Border Mechanism (CBAM) and carbon pricing. FDP sees the first two threatening corporate well-being, global competitiveness and employment, while the Greens see the latter as not effective enough and socially unjust. These negotiations will be complicated. Meanwhile, no-one presents credible alternatives to Germany’s natural gas reliance for at least the coming 15 years, making it a default German policy vis-á-vis Europe.
In practice, that means Germany will push for natural gas being regarded as a transition fuel under the EU Taxonomy and the soon-to-be renegotiated Renewable Energy Directive (RED II), as well as other related climate and project funding legislation.

This will pit Germany further against the interest of France and most of the Nordic countries (including EES-member Norway). They are keen to utilize their largely fossil-free power grids in developments like the hydrogen economy or e-fuels and cash in on having come further on de-fossilisation. In the medium term, however, more de-fossilised sectors could again struggle to compete on price with natural gas-fueled equivalents, if natural gas is recognized as transition-aligned. After all, this was the case over the past few years.

Share post

Related posts