VZCZCBSO626
RR RUEHBS
DE RUEHRL #0959/01 2030524
ZNR UUUUU ZZH
R 210524Z JUL 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 1690
INFO RUCNFRG/FRG COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 BERLIN 000959 
 
SENSITIVE 
SIPDIS 
 
FOR EEB U/S JEFFERY AND EUR/FO DAS BRYZA 
 
E.O. 12958: N/A 
TAGS: ENRG EINV PGOV EU SENV GM
SUBJECT: GERMAN ENERGY LEGISLATION COMPROMISES 
COULD RESULT IN HIGHER PRICES AND MISSED CO2 
REDUCTION TARGETS 
 
REFTEL: 2007 BERLIN 2177 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION. 
 
¶1.  (SBU) SUMMARY: Six months after triumphantly 
presenting draft energy laws to meet aggressive 
global warming targets (reftel), coalition 
harmony has dissolved, resulting in watered down 
legislation that is likely to cost more and 
deliver less than initially expected. 
Parliamentary hearings were necessary to resolve 
disputes so that the legislation could move 
forward before the summer recess.  In the end, 
four laws on combined heat and power (CHP), 
renewable energy (EEG), renewable heating and 
liberalization of the electric metering market 
received parliamentary approval on July 4 and 
will enter into force January 1, 2009.  The 
Cabinet approved a second tranche of draft 
legislation on June 19 which will be submitted to 
Parliament after the summer recess.  The lack of 
fiscal discipline could lead Germany to fail to 
meet its ambitious mid-term (2020) CO2 reduction 
targets.  END SUMMARY. 
 
¶2.  Two days after the opening of the UN Climate 
Conference in Bali last December 3, an unusually 
harmonious CDU/SPD Coalition Cabinet passed a 
package of draft laws to combat global warming. 
The measures are part of the Integrated Energy 
and Climate Program (IECP) resolved by the 
Cabinet at its retreat in August 2007 to reduce 
Germany's CO2 emissions by 36.6 percent in 
comparison to 1990 levels by 2020.  The 3.3 
billion euro package covers a range of measures 
from tighter building insulation requirements to 
a CO2-based vehicle tax to energy legislation. 
Initiatives ranging from reducing power plant 
emissions, introducing energy efficiency 
standards for government procurement and 
legislation allowing smart meters to enable 
consumers to save energy have proved relatively 
uncontroversial; political jockeying has centered 
around legislation on combined heating and power 
(CHP), renewable energy (EEG), and renewable 
heating.  The law on liberalizing the metering 
market had a smooth passage.   Following are 
brief descriptions of controversial issues in the 
CHP, EEG and renewable heating law. 
 
CHP Law - Efficient but Expensive 
--------------------------------- 
 
¶3.  The update of the 2002 Combined Heating and 
Power (CHP) Act aims to double the CHP share from 
12% to 25% by 2020, saving 15 million metric tons 
of CO2.  The law allocates a maximum of 750 
million euros per year to promote CHP technology, 
which many believe to be unrealistically low. 
The Upper House of Parliament failed to convince 
the lower House to increase CHP funding to 950 
million euro per year.  Many experts believe the 
lack of adequate funding will ensure that CHP 
goals will not be met.  In a compromise, the 
government must review the efficacy of the 
subsidy after two years. 
 
EEG - Less Efficient But More Expensive 
--------------------------------------- 
 
¶4.  The revision of the existing Renewable 
Energies Law (EEG) aims to increase the share of 
renewable energy from just over 13% to between 
25% and 30% by 2020, thereby saving 54.4 million 
metric tons CO2.  The EEG requires net operators 
to give priority to renewable energy and to 
guarantee prices considerably higher than those 
for conventional energy; the costs are passed on 
by net operators to consumers. 
 
¶5. While solar energy accounts for only 3.5% of 
renewable energy (0.6% of total power generated), 
it cost the consumer 22.5% of total EEG costs in 
¶2007.  After a heated political debate, the 
revised EEG reduced the kWh price by between 8 
and 10% from 2009 onwards, about the same as had 
been originally planned.  RWI Essen, a leading 
economic research institute close to industrial 
consumers, calculated that the revised EEG 
subsidies are still too high and would save 
consumers only 1.3 billion euros by 2010.  RWI 
advocated reducing guaranteed prices for solar 
energy by 30% in 2009, a move supported by many 
within the CDU.  In the resulting internal CDU 
fight, advocates of the 30 percent reduction 
failed to overcome opposition from CDU 
environmentalists and the eastern German states, 
where many solar firms are located.  Coalition 
discipline, however, prevailed in the 
parliamentary vote and the subsidies remained 
unchanged, which could ultimately prove to be an 
opportunity lost to fund other energy saving 
measures. 
 
¶6.  Wind is the oldest and largest renewable 
energy generator in Germany; wind-generated power 
grew by 28% in 2007.  With more moderate 
guaranteed prices to suppliers it cost the 
consumer nearly 46% of total EEG costs while 
generating 59% of total renewable power.  The 
original draft EEG reduced guaranteed rates; 
however Parliament accepted a later proposal from 
SPD Environment Minister Gabriel to raise rates 
instead.  The revised EEG improves compensation 
for offshore wind generation going into operation 
by 2013.  While onshore wind capacity is 
saturated, hopes have turned to offshore wind. 
To date, however, no offshore sites have gone 
into operation because of technological 
challenges. 
 
Renewable Heating Law 
--------------------- 
 
¶7.  The draft Renewable Heating Law aims to 
increase the share of renewable energy in heating 
from the current 6% to 14% in 2020, saving 9.2 
million metric tons of CO2.  Funding would amount 
to 350 million euros in 2008 and rise to 500 
million euros from 2009 onwards.  New buildings 
from 2009 onwards must include renewable energy 
for heating.  The controversial requirement for 
heating systems in existing buildings to be 
upgraded to meet these stipulations was 
eliminated before the law even went for Cabinet 
approval.  However, the law permits states to 
introduce their own requirements for investments 
in existing buildings. 
 
Second Tranche of IECP Legislation Passes the 
Cabinet 
--------------------------------------------- ---- 
---- 
 
¶8.  On June 19 the Cabinet passed a second 
tranche of draft legislation which will be 
submitted for parliamentary approval following 
the summer recess.  Main drafts concern reducing 
energy consumption in new buildings by 30% from 
2009 onwards, increasing toll charges steeply to 
penalize trucks with heavy emissions, requiring 
tenants to pay a higher share of their heating 
bill according to actual consumption and 
accelerating the construction of long distance 
power lines to transport offshore wind energy. 
In some cases, the bills were watered down even 
before they went to the Cabinet.  Controversial 
legislation to change the vehicle tax to a CO2 
base has been postponed until 2010. 
 
Comment:  Quo Vadis? 
-------------------- 
 
¶9.  Independent experts assessed the original 
August 2007 Meseberg CO2 reduction program as 
able to achieve 37% of the planned 40% reduction 
by 2020.  However, the controversy surrounding 
some of the most important energy legislation and 
rising costs associated with implementation may 
make these targets politically impossible to 
achieve.  A natural face-saving option lies in 
the fact that the 40% pledge was tied to the EU's 
agreement to reduce its own emissions by 30%, 
which hasn't happened.  The Parliamentary Second 
Chamber chose not to delay the process further on 
July 4 by calling for the mediation committee, 
but has made further recommendations on some of 
the legislation.  That aside, what is most 
striking about the debate over the current 
legislative package is the disappearance of the 
Grand Coalition's harmonious approach since 
December 2007.  It is symptomatic of the 
increasing influence that the upcoming federal 
elections are having on policy across all major 
areas.  END COMMENT. 
 
TIMKEN, JR