VZCZCXRO0172
PP RUEHAG RUEHAST RUEHDF RUEHHM RUEHLN RUEHLZ RUEHMA RUEHPB RUEHPOD
RUEHTM RUEHTRO
DE RUEHRL #0407/01 0960723
ZNR UUUUU ZZH
P 060723Z APR 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 3775
RUEHBS/USEU BRUSSELS PRIORITY
RUCNFRG/FRG COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 05 BERLIN 000407 
 
SENSITIVE 
 
SIPDIS 
 
BRUSSELS FOR DOLLINGER 
 
E.O. 12958: N/A 
TAGS: OVIP ECON SENV ENRG TRGY PREL GM KGHG
SUBJECT:  Scenesetter for CODEL Bingaman 
 
¶1. (U) SUMMARY:  Senator Bingaman, Mission Germany warmly welcomes 
your visit and looks forward to supporting a mix of productive 
meetings.  You will find your German interlocutors to be 
understanding of the broad challenges the US is facing 
simultaneously; they await robust US engagement on climate and 
energy issues and will be eager to share lessons learned and best 
practices for developing US climate and energy policy. 
 
¶2.  (SBU) Germany is the largest greenhouse gas emitter in Europe 
and has taken on ambitious abatement targets domestically and 
through the EU.  Aggressive domestic policies on energy efficiency 
and renewable energy sources have placed Germany on a path to meet 
its goals, but this undertaking faces serious threats from Germany's 
commitment to phase-out nuclear power and heavy resistance from 
German industry.  Once a bastion of environmental concern in Europe, 
Germany is reeling from the economic crisis and upcoming elections 
may limit the resolve of Chancellor Merkel to push for deeper 
domestic emissions cuts. 
 
¶3.  (SBU) Germany's energy policy is similarly entangled.  The 
future of nuclear power is an uncertain and contentious issue. 
Germany is rich with deposits of brown coal, but despite support 
from the Economics and Environment Ministries, large-scale 
demonstration projects in clean coal and carbon capture and 
sequestration (CCS) technologies have been prevented by high costs 
and environmental activism.  Germany also relies on imported natural 
gas from Russia, but recent threatened shut offs, resulting from the 
inability to pay of pipeline countries between Russia and Germany, 
have renewed public concerns about Germany's energy security.  END 
SUMMARY. 
 
German Government in an Election Year 
------------------------------------- 
 
¶4.  (SBU) Since 2005, the German Federal government has been held by 
a "Grand Coalition" of the traditionally opposed Christian Democrat 
(CDU/CSU) and Social Democrat (SPD) Parties.  As part of the 
coalition agreement, control of the various ministries is divided 
among the two parties, and each minister has a great deal of 
autonomy in determining its policy regardless of what the Chancellor 
might prefer.  Chancellor Merkel and Economics Minister zu 
Guttenberg are CDU/CSU members and Foreign Minister Steinmeier and 
Environment Minister Gabriel are Social Democrats.  Parliamentary 
elections, which will determine control of the Federal government, 
are scheduled for September of this year, preceded by elections for 
the European Parliament and several key Laender (states) this 
summer.  The CDU/CSU and SPD would each prefer more like-minded 
coalition partners from some combination of the three major 
opposition parties: the Free Democrats (FDP), the Greens, and the 
Left.  But they must also deal with the reality that a Grand 
Coalition may once again be the only workable outcome.  Chancellor 
Merkel and Foreign Minister Steinmeier will be the leading 
candidates for their respective parties in the election, resulting 
in a situation where separate elements of the same government are 
campaigning against one another while simultaneously trying to 
govern as a coalition.  Given this, care must be taken to 
differentiate what is official policy of the Federal Government, and 
what is political posturing. 
 
German Emissions and Trends 
--------------------------- 
 
¶5.  (U) The most recent official data available indicates that 
German CO2 emissions in 2006 were 18 percent below 1990 levels, and 
in 2007 were 22 percent below 1990 levels.  The unseasonably warm 
2006-2007 winter and subsequent decline in energy demand for heating 
likely accounted for some of the 4 percent decrease.  Preliminary 
reports from Germany's Federal Environment Protection Agency 
indicate that the country's overall emissions declined 1.2 percent 
in 2008 even as energy consumption increased by 1 percent.  This 
places German emissions in 2008, at 23.3 percent below 1990 levels. 
This week, the Environment Ministry announced that Germany had 
officially met its reduction target of 21 percent below 1990 levels 
for the 2008-2012 phase of the Kyoto Protocol. 
 
¶6.  (U) Under the Kyoto Protocol, the EU-15 has committed to a 
collective emissions reduction target of 8 percent below 1990 levels 
by 2020.  If the EU-15 is to meet this goal, Germany's ambitious 
emissions cuts will be instrumental in offsetting emissions from 
countries like Austria, Greece, Italy, and Spain, which have seen 
emissions increases since the 1990 base year and are not expected to 
meet their individual Kyoto targets.  Other EU-15 and EU-25 
countries like Bulgaria, the Czech Republic, Estonia, and Slovenia, 
are projected to make deeper emissions cuts (in percentage terms) 
than Germany by 2010, but the scale of Germany's economy and 
emissions make its projected cuts the largest in absolute terms by a 
wide margin. 
 
BERLIN 00000407  002 OF 005 
 
 
 
International and Domestic Emissions 
Commitments 
------------------------------------ 
 
¶7.  (U) Germany is a party to the EU 20/20/20 emissions reduction 
plan, in which the European Union has committed to reducing its 
collective emissions to 20 percent below 1990 levels, increasing the 
share of renewable energies in its energy generation portfolio to 20 
percent, and a 20 percent reduction in energy demand by the year 
¶2020.  The plan also contains a provision that would increase the 
EU's emissions reduction target to 30 percent below 1990 levels if 
other major economies undertake similarly ambitious goals. 
 
¶8.  (U) After the EU 20/20/20 plan's passage, Germany indicated that 
to help the EU meet its aggregate reduction goals, it would agree to 
a binding 30 percent reduction goal by 2020.  Germany's commitment 
also contains a provision that will increase its target to 40 
percent below 1990 levels if the EU moves to its 30 percent 
reduction goal.  While their official EU target is a 30 percent 
reduction, the German Government domestically refers to the 40 
percent reduction goal. 
 
Domestic Policy and Meseberg 
---------------------------- 
 
¶9.  (U) The main instrument of German Climate Policy is the 
"Integrated Energy and Climate Program," which was agreed to by the 
German government in 2007, and is referred to as the "Meseberg 
Package."  The Meseberg Package consists of twenty-nine key 
elements, including: a mandate for increased combined heat and power 
(CHP) generation, mandates for an increased renewable share in heat 
and electricity generation, incentives for solar and wind energy 
producers, and mandates for stricter building codes and increased 
energy efficiency.  Analysts predict that implementation of the 
Meseberg package will result in an emissions reduction to 34 percent 
below 1990 levels by 2020.  Germany is still addressing methods to 
make up the 6 percent gap between the results of Meseberg 
implementation and the 40 percent reduction required to meet its 
domestic and possible EU goal. 
 
The "Climate Chancellor" 
------------------------ 
 
¶10.  (U) At the beginning of her term, Chancellor Merkel, a former 
Environment Minister herself, was hailed in the media as the 
"Climate Chancellor" for her efforts to elevate awareness of 
environmental concerns, especially climate change.  In 2007, Germany 
and Merkel held the rotating presidencies of both the G8 and EU, 
where she made combating climate change a top priority.  A 
particularly notable success came at the Heiligendamm G8 summit, 
where Chancellor Merkel was able to secure a commitment from the G8 
members, including the Bush Administration, to seriously consider 
taking action to halve global emissions by 2050. 
 
¶11. (SBU) The economic crisis, however, has brought a noticeable 
change in Merkel's commitment and attitude on these subjects.  The 
worldwide downturn has hit Germany, the world's largest exporter, 
hard, particularly in the manufacturing sector, and a large portion 
of Merkel's conservative electoral base consists of employees and 
supporters of industry, especially in Bavaria and the German south. 
Though she still holds a lead in the polls heading toward 
September's Parliamentary elections, Merkel is under intense 
political pressure from her electoral base to protect German jobs. 
Germany is in its worst recession since World War II, and in the 
past year orders for industrial and investment goods have fallen by 
37.9 percent and 41.8 percent, respectively.  Though the German 
government officially predicts a 2.25 percent GDP contraction for 
2009, prominent economists are now predicting a GDP decline between 
5 percent and 7 percent.  The unemployment rate for March was 8.1 
percent, but government-funded short working hour programs 
("Kurzarbeit") keep many workers employed who would otherwise be 
laid off, and so this figure is artificially low.  Uncertainty over 
the future of GM-owned Opel and the recent announcement of 3,000 job 
cuts by Thyssen-Krupp, Germany's largest steel producer, are not 
increasing confidence.  Faced with Germany's dire economic 
situation, Chancellor Merkel will likely be constrained in her 
ability to take further action on GHG mitigation. 
 
¶12.  (SBU) Indicative of this pressure and the resulting change in 
Merkel's position is a statement made by Merkel in the wake of the 
Brussels EU summit that she would not approve an EU climate package 
or rules that would "endanger German jobs or investment." 
Chancellor Merkel is under particular pressure from German heavy 
industry concerned about carbon leakage and the resulting job 
losses, especially in the auto, steel, chemical, aluminum, and 
cement industries.  Last December, Chancellor Merkel and the 
 
BERLIN 00000407  003 OF 005 
 
 
Economics Ministry lobbied the EU Commission to exempt German heavy 
industry from the planned auction of carbon permits in the EU 
Emissions Trading Scheme (ETS).  The Commission agreed in principle, 
but will not make a final decision until 2010.  Chancellor Merkel 
also expressed deep opposition to EU legislation seeking to tax 
emissions from large cars, which would hurt the luxury sedans 
produced by German automakers.  The Association for Energy-Intensive 
Industries (VIK), has made a particularly heavy effort to lobby 
German policymakers, and in concert with 14 similar federations from 
other member states, the EU.  VIK has recently presented analysis of 
the lessons learned from the EU ETS that argues against auctioning 
and allocation based on historic production.  They maintain that 
"dynamic benchmarking" using actual production reduces opportunity 
costs, eliminates windfall profits, and guarantees a total cap. 
 
The Environment Ministry 
------------------------ 
 
¶13.  (U) As part of the Grand Coalition agreement, the Social 
Democrats control the Environment Ministry.  Environment Minister 
Sigmar Gabriel is a strong supporter of global efforts to combat 
climate change and an outspoken critic of plans by Merkel and 
CDU/CSU to reconsider Germany's nuclear power policies.  Instead, 
Gabriel and the Ministry support continued emissions reduction 
through drastic increases in energy efficiency and renewable energy 
output, especially from solar and wind sources.  Matthias Machnig, 
also of the SPD, is the Ministry's State Secretary and Germany's 
chief negotiator in international climate fora.  Machnig, on behalf 
of the Ministry, has been a strong advocate of emissions trading 
regimes and has continually supported OECD- and worldwide linked 
markets to reduce the cost of emissions abatement. 
 
Economics Ministry and Energy Policy 
------------------------------------ 
 
¶14.  (SBU) The Economics Ministry is headed by CSU Minister Karl 
Theodor zu Guttenberg, a young and charismatic politician recently 
crowned as a rising star by the German media.  The Economics 
Ministry is responsible for energy policy, but despite a series of 
high level meetings chaired by Chancellor Merkel, Germany has been 
unable to formulate a national energy policy, largely due to deep 
divisions between environment and industry interests.  The 
Chancellor and the Economics Ministry support extending nuclear 
power plant operations against the nuclear moratorium policy; they 
argue that Germany is unlikely to achieve its emissions reductions 
goals without nuclear power.  Germany's only major domestic fuel 
source is coal, and the Economics Ministry supports the development 
and use of coal and carbon capture and sequestration (CCS) for 
energy security reasons.  The Social Democrat-controlled Environment 
Ministry, a strong opponent of nuclear power, also supports clean 
coal and CCS technologies.  Despite the rare concurrence of the 
Economics and Environment Ministries on coal issues, local 
grassroots environmental activism has stopped most coal projects. 
Germany also depends on Russian natural gas imports, and wary of 
relying too heavily on Russian supplies, the Ministry advocates 
diversification of suppliers and supply routes.  The Economics 
Ministry also supports increased renewable energy use and energy 
efficiency standards, but conflicts with the Environment Ministry 
when costs from the feed-in tariff program and environmental taxes 
are passed on to consumers. 
 
EU ETS 
------ 
 
¶15.  (U) Germany is a part of the EU Emissions Trading Scheme (ETS), 
which covers its glass, chemical, paper, steel, and cement 
manufacturing industries, as well as conventional power generation 
and most medium- and large- scale industrial ventures.  Notably 
absent from ETS participation are emissions from the transportation 
sector, and from households and buildings.  Approximately half of 
Germany's total emissions are covered by the ETS.  Governments are 
now allowed to auction up to 10 percent of their allotted permits, 
but under pressure from industry in December, Chancellor Merkel and 
the Economics Ministry lobbied to exempt German industry from 
purchasing the permits at auction.  The German Emissions Trading 
Authority (DEHSt) released data April 1, 2009 showing that German 
emissions under the Trading Scheme fell 3.0 percent, to 487 million 
metric tons, in 2008.  Under the National Action Plan (NAP) for the 
second phase of the EU ETS, Germany's 1,659 covered installations 
were allotted a total of 389 million allowances, leaving a deficit 
of 89 million allowances to be covered by borrowing or open market 
purchase. 
 
Renewable Energy 
---------------- 
 
¶16.  (U) In 2008, 9.6 percent of Germany's total power consumption 
 
BERLIN 00000407  004 OF 005 
 
 
was generated by renewable sources.  Renewable sources provided 15.3 
percent of Germany's electricity and 7.3 percent of Germany's heat 
generation.  Environment Ministry data from 2007 indicates that wind 
power provides the largest share of renewable electricity generation 
(45 percent), followed by hydroelectric (24 percent) and biomass (22 
percent).  Photovoltaic solar power installations provide 4 percent 
of Germany's renewable electricity.  The vast majority of renewable 
heat generation comes from solid or liquid biomass (93 percent), 
with solar thermal and near-surface geothermal accounting for 4.1 
percent and 2.4 percent of renewable heat generation, respectively. 
 
Domestic and International Commitments to 
Renewable Energy 
---------------- 
 
¶17.  (SBU) To support the EU's aggregate commitment to 20 percent of 
final power consumption from renewable sources by 2020, Germany has 
committed to generating 18 percent of its total power consumption 
from renewable sources.  Domestically, through the Meseberg package, 
Germany has committed to increase the share of renewables 
electricity generation to 25-30 percent by 2020 and to increase the 
share of renewable energy for home heating use to 14 percent by 
¶2020.  Germany was also the prime mover in founding the 
International Renewable Energy Agency (IRENA) this January.  The 
purpose of IRENA is to promote renewable energy sources and 
facilitate technology transfer to developing countries. 
 
Renewable Energy Sources Act and Feed-in Tariff 
--------------------------------------------- -- 
 
¶18.  (U) The main market driver for renewable energy development in 
Germany is the amended Renewable Energy Sources Act ("Erneuerbare 
Energien Gesetz" - EEG).  The act was passed April 1, 2000, and 
provides fixed feed-in tariffs for renewable energy sources until 
¶2020.  It is a guaranteed tariff, differentiated across technologies 
and scales in order to encourage research and development in 
promising, but relatively high cost renewable energy sources like 
photovoltaics, instead of investment in only the cheapest renewable 
sources like wind energy.  To create an incentive for early actors 
and prevent late adopters from reaping windfall profits, the 
guaranteed tariff rate falls each year by a pre-determined, 
technology-specific depreciation rate, but is locked in once grid 
access is established.  In 2004, the act was amended to provide 
preferential grid access to power generated from renewable sources, 
so in the event of excess supply, utilities must purchase energy 
from renewable sources first and decrease output at conventional 
production sites. 
 
The Nuclear Question 
-------------------- 
 
¶19.  (SBU) Commitments to reduce the supply of nuclear power, which 
currently provides about 20 percent of Germany's power generation, 
present an additional complicating factor in the German quest for 
emissions reduction.  The previous SPD/Green Party Schroeder-led 
coalition government passed legislation, known as the "nuclear 
moratorium," to phase-out all of Germany's nuclear power plants by 
¶2020.  Chancellor Merkel and her conservative party (CDU/CSU), the 
senior member of the current coalition government, agreed to 
maintain the nuclear moratorium as part of the coalition agreement, 
but have expressed the desire to completely reverse the policy.  The 
junior coalition party, the SPD, is vehemently opposed to any plans 
to extend nuclear power in Germany and have openly criticized 
Merkel's attempts to extend the life of nuclear power plants. 
 
¶20.  (SBU) Fears about reactor safety, terrorism, and waste disposal 
combine with a strong environmental tradition and memories of the 
Chernobyl disaster to make nuclear power an enduring and sensitive 
issue for the German public.  The long-standing general aversion to 
nuclear power among Germans has, however, waned in recent years. 
The results of a biannual survey by the Environment Ministry show 
that in December 2006, 65 percent of Germans wanted the nuclear 
phase-out to proceed on schedule or faster, while 27 percent opposed 
the phase-out entirely or favored extending the life of existing 
nuclear facilities.  In December 2008, the same survey reported a 
slightly pro-nuclear shift: 57 percent of Germans favored 
accelerating or maintaining the phase-out and 32 percent favored 
extending plant life or abandoning the moratorium policy in its 
entirety.  Rising oil and consumer energy prices, along with energy 
security concerns - most recently the January 2009 Russian-Ukrainian 
Gas crisis - have triggered a public reconsideration of nuclear 
power.  An informal poll conducted on the Environment Ministry's 
website last month indicated that 57 percent of Germans opposed the 
nuclear phase-out entirely, while only 28 percent supported the 
policy.  The staunchly anti-nuclear, Social Democrat-controlled 
Ministry removed the poll within a week. 
 
 
BERLIN 00000407  005 OF 005 
 
 
KOENIG