German coalition talks update – energy topics unlikely to create bottleneck

Source: Heren


This story was originally published for ICIS Power Perspective subscribers on 05 January 2018 12:03 CET.

Germany’s conservatives and social democrats will start meeting on Sunday, 7 January to explore the options of a future government cooperation. Germany’s Social Democratic Party (SPD) have been said to put forward positions on energy and climate topics, demanding lower electricity charges at the cost of CO2-linked levies on fuels.

State of play/coalition talks between CDU/CSU and SPD

  • On Sunday, 7 January the exploratory talks between the conservatives (CDU/CSU) and the social democrats (SPD) will start
  • Negotiators will meet for a consecutive five days between 7 and 11 January
  • Only after these talks, the political groups will have to decide whether to open formal coalition talks or not (see details below)
  • Participants already indicated that they want to keep the participant list small and abstain from publishing any interim results
  • However, the list of participants is still considerable, with two to three delegates per political group nominated for the negotiation in one of the 15 working groups
  • A leaked paper from the SPD on energy policy provoked critique of the controversial positions. A copy of the paper was unavailable, but we understand it included proposals to:
    • Lower the power price by removing duties such as the electricity tax or the exemption of energy intensive industries from Germany's renewable energy laws (EEG)
    • This, according to the paper, would result in an effect of €7bn/year for each of the two measures
    • The proposal foresees that revenue losses would be gradually compensated, budget-neutral, with a CO2 control element on all energy sources, shifting duties from electricity to heating and motor fuels
    • The proposal foresees that consumers will face no extra burden
    • The head of the social democrat negotiation team covering energy topics in the talks said the paper wasn’t a social democrat position paper but was drafted by the economy ministry – which is SPD-led
  • The CSU already defined its positions on controversial topics very clearly – making it more difficult to find a common ground in the exploratory talks

Analysis for energy topics

  • The reduction of the electricity tax has long been demanded by the SPD
  • So far, the conservatives have rejected this idea as well as the introduction of a national carbon tax
  • The leaked paper, allegedly coming from the SPD, proposes to develop a concept for the pricing of CO2, accounting for transport, buildings and agriculture sectors
  • The proposal aims to put a price on carbon for emissions not covered under the EU emissions trading system (ETS), for example oil in domestic heating
  • This could be a compromise to not touch the ETS sector but still implement a national price on carbon through the backdoor for selected sectors
  • However, please note that we did not see the original paper
  • Regarding the future of coal generation, one of the dominant topics during recent Jamaica talks, the paper does not provide major insights
    • It does not reflect on the fact that Germany’s domestic 2020 emission reduction targets will be missed without closing coal generation and merely acknowledges that the 2030 targets are met
    • The design of structural change in the lignite mining areas should be the subject of a commission
    • Further, the paper promotes a rapid expansion of electricity grids and a higher emphasis on energy efficiency (by 2020, energy consumption would have to be halved)
    • In the transport sector, the paper calls for the expansion of e-mobility and charging stations
  • We expect these being the main lines for the social democrats
  • Especially regarding a coal phase-out, we see a softened stance

Timeline and political scenarios

  • The timeline for finding common ground to formally open coalition talks is very ambitious
  • The SPD faces heavy internal debate whether or not to enter another Angela Merkel-led coalition
  • Against this background, the following decisions in the SPD are important:
    • 12 January: Meeting of the SPD party executive committee
      • It seems currently likely that a majority will vote for starting coalition talks
    • 21 January: Extraordinary party congress of the SPD
      • Decision whether the party congress follows a positive vote of the party executives remains very uncertain
    • Unknown date: member decision in the SPD
      • If the party congress votes in favour of the start of coalition negotiations, all SPD members have their say to start formal coalition talks with an unknown result
  • If the SPD agrees in their internal processes to go ahead with another grand coalition, it is very likely that the third large coalition will be led by Merkel
  • If the SPD does not agree, the following options are available:
    • Renewed negotiations on Jamaica
      • FDP is open to such idea, but only without Merkel in the lead
      • Highly uncertain scenario, as Merkel has indicated she will not step back
    • Minority conservative-led government
      • Option clearly rejected by Merkel
    • Snap-elections
      • These must take place no later than 60 days after the dissolution of the Bundestag
      • A new election could take place as early as June or towards the end of 2018 as there wouldn’t be elections during the summer break

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