German coalition talks update – energy topics unlikely to create bottleneck

05 January 2018 14:53 Source:ICIS

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

Our Power Perspective customers have access to extensive modelling of different options and proposals. If you have not yet subscribed to our products, please get in contact with Neil Dewet (Neil.Dewet@icis.com).

By Staff Reporter