• Title: The Federal Government’s Climate Policy in the wake of the European Council

• Subtitle: Climate Agenda 2020 - Climate Protection means Restructuring the Industrial Society
• Speaker: Federal Minister Sigmar Gabriel
• Occasion: Delivery of a Government Policy Statement on 26 April 2007
• Date/Location: 26.04.2007, German Bundestag

Ladies and Gentlemen,

Climate Protection means Restructuring the Industrial Society

The title of today's government policy statement is: "Climate Agenda 2020". But in actual fact, implementing Europe's climate protection targets entails no less than the radical restructuring of industrial society. If we want to provide goods and services for a world whose population is expected to grow from 6.5 billion to more than nine billion, and we want to halve greenhouse gas emissions at the same time, this will require a quantum leap in the development of industrial society. We will need to improve our national economy's energy efficiency not by 1% annually, as at present, but by 3% per year. We can only achieve our climate protection targets with an ambitious improvement in energy efficiency and a massive expansion of renewable energies. And in doing so, we will enter a new phase in the development of industrial society.

But it is also apparent that this cannot be a defensive strategy, and nor can we preach an ethics of renunciation. Much of the world's population lives in poverty. They would regard a recommendation that they should adopt the affluent North's ethics of renunciation as a new form of colonialism.

Instead, we must drive forward research and development pro-actively, review our production processes, develop new products and services, and devise innovative transportation strategies. Here, we have clearly fallen behind in recent years compared with other countries: whereas Japan currently invests more than 30 dollars per capita in energy research, the figure for Germany is a paltry 6.20 dollars. That needs to change. The Federal Government will intensify its commitment to energy research as a priority and expects a similar commitment from business as well.

So I am very pleased that Minister Schavan is setting new priorities here and has launched a broad-based climate research programme. The Federal Ministry of Education and Research (BMBF) will be providing 255 million euros in funding for this purpose over the next three years.

One of the new priority themes is carbon capture and storage (CCS) at coal-fired power stations. This is the only way to create long-term prospects for coal-fired electricity generation in Germany, China and world-wide.

For this innovation strategy, we must also redefine the concept of technological progress, so that it can make a key contribution not in an unfocussed way but guided by the vision of sustainable development. This concept is thus the opposite of "business as usual" and embodies the "wind of change" that our country needs.

I believe that we can genuinely fill people with enthusiasm - especially young people - for this restructuring of industrial society. We are therefore relying on the talents, the creativity and the commitment of the young generation. We are appealing to you to develop new ideas, concepts, technologies, products and processes - for the future belongs to you!

Time for action

We have all witnessed the dangers of climate change in the last few months. The only sign of winter that we saw in Germany was on the calendar. Our own senses tell us that climate change is happening, and this is borne out by the unequivocal statements coming from scientists. The reports have been submitted, and the speeches have been given. It is now time to take action.

The heads of state and government, with the Federal Chancellor at the helm, have adopted a truly historic decision on future climate policy. It is an historic decision which takes the integration of energy policy and climate protection seriously and links ambitious climate targets with far-reaching measures:

The European Union is prepared to cut its greenhouse gas emissions by 30% by 2020 compared to the 1990 baseline, provided that other industrialised countries commit to comparable reductions. Newly industrialising countries are urged to also make an adequate contribution.

In advance of the international negotiations, the European Union has already committed to cut its emissions by at least 20%. Besides stating the targets, the EU's decision also identifies the two key measures in this context: a 20% increase in energy efficiency by 2020, and a 20% share of renewable energies in primary energy consumption by the same date. This is a challenging and well-rounded package which is unequalled anywhere in the world.

"Business as usual" is not possible

That is the benchmark which the EU has set itself, and it is the bench-mark against which we will have to measure up in Germany too. The hard facts show how far we have to go to achieve these ambitious goals: CO2 emissions in Germany are now 18% below the 1990 baseline. That is a major achievement, no question. No other Western industrialised country can point to such a good track record. But the truth is that we slipped back 0.7% last year instead of moving closer to the 21% that is our target for 2012.

Today, we are still 3% away from achieving our climate protection target for the period 2008 - 2012. We need to cut our greenhouse gases by a further 37 million tonnes in order to fulfil our Kyoto commitments.

The reasons for this shortfall are obvious: German industry has failed to honour its pledges on the expansion of combined heat and power (CHP), and emissions trading has not achieved the success that was hoped for. On the contrary, during the first trading period, far too many emission allowances were allocated free of charge to the energy sector and industry, with the result that the current price of an allowance is just 61 cents. That price level really cannot provide any impetus for the modernisation of the power supply and industrial production.
So we need some serious decisions, because the European Council's new targets already extend far beyond Kyoto. If the EU wants to cut greenhouse gas emissions by 30%, Germany will have to step up its efforts. That is also how the coalition agreement between the SPD and the CDU/CSU sees the situation.
The German Bundestag, in its decision of November 2006, therefore rightly drew attention to the findings of the Study Commission "Protecting the Earth's Atmosphere".

Germany would thus have to cut its greenhouse gas emissions by 40% by 2020 compared with 1990 levels. That means that the aim is a 21% reduction in the 22 years from 1990 to 2012, and then a further 19% reduction within eight years by 2020. That is where the benchmark has been set - and that's where we need to go.

Key elements of the climate protection programme

With its new climate protection programme, the Federal Government will be launching a package of measures before the end of this year to implement the European Union's decisions. In order to achieve a 30% reduction in greenhouse gas emissions by 2020, Germany will need to cut its emissions by 147 million tonnes compared with today's figure. But that is not enough. A 40% reduction target means cutting emissions by 270 million tonnes compared with 2006.
Initial findings of studies commissioned by the Federal Government indicate that this is feasible. The 270 million tonnes can be achieved by 2020 through measures in eight key areas:

• 1. An 11% reduction in electricity consumption through a massive increase in energy efficiency: this will cut emissions by 40 million tonnes
• 2. Renewing the power plant park, with more efficient power plants: 30 million tonnes
• 3. Increasing the share of renewables in electricity generation to more than 27%: 55 million tonnes
• 4. Doubling the efficient usage of combined heat and power (CHP) to 25%: 20 million tonnes
• 5. Reducing energy consumption through renovation of buildings, efficient heating systems and in production processes: 41 million tonnes
• 6. Increasing the share of renewable energies in the heating sector to 14%: 14 million tonnes
• 7. Increasing efficiency in the transport sector and increasing the share of biofuels to 17%: 30 million tonnes
• 8. Cutting emissions of other greenhouse gases such as methane: 40 million tonnes.

There is no doubt that this package of measures is very ambitious, but it is achievable. It means taking the implementation of our climate protec-tion targets really seriously for the first time. We need to make some decisions now!

Anniversary of the Chernobyl disaster

Today is the anniversary of the Chernobyl nuclear disaster and I am sure it will not have escaped your notice that in the package of measures which I have just listed, there is no mention of nuclear power. Everyone knows that within the coalition and, indeed, the public at large, there are divergent views on the issue of nuclear power. However, I agree with Commissioner Piebalgs - who, unlike myself, is a supporter of nuclear power - that the key fields of action for security of supply and climate protection are energy efficiency and renewables. Commissioner Piebalgs has said, and I quote:

"Nuclear power is not the answer to all questions, such as the protection of the Earth's atmosphere. (….) What is more important are intensified efforts to save energy and expand the use of renewables".

I can only endorse Mr Piebalgs' view: making nuclear power the focal point of energy policy and climate protection has nothing to do with reality. I have no doubt that we will continue the lively debate about this issue in future. But far more than 90% of what we need to do to solve the problems lies beyond the scope of the sometimes vociferous arguments for and against nuclear energy. Let me quote another, neutral, observer of the scene, our Federal President Horst Köhler:

"I am not aware of any serious voices which justify their advocacy of nuclear power on the grounds that it is the all-embracing panacea which offers a long-term solution to the climate problem. From my perspective, we need a balanced energy mix, and to that end, what we need above all is a strategy for the further expansion of renewable energies and a massive improvement in energy efficiency. And not least, we must use the available energy more sparingly."

If, based on this awareness, we can argue constructively about energy and climate in future, this will be a major step forward.

Financing

There is one thing which these measures certainly are not: they are not too expensive. On the contrary, this programme is good for the economy, the environment and employment. It creates jobs in the future-oriented industries and makes our economy fit for the global competition over scarce resources. Already, 214,000 people are working and generating income in the renewables sector. And a few months ago, we reached an agreement with this industry on the creation of a further 5000 new training places over the next two years. This is a genuine German success story.

Of course climate protection also costs money. But the principle that applies to climate protection is that today's investments are tomorrow's jobs. But above all, investment in climate protection means security from the destruction associated with unfettered climate change: the German Institute of Economic Research has put a figure on the economic damage that unmitigated climate change would cause in Germany: 137 billion euros by 2050!

By comparison, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) estimates the additional costs of these climate protection investments in the federal budget to be around three billion euros to 2010. That's a pretty good deal, in my view. I cannot and will not second-guess the budget decisions, but they need to be taken this year. For example, the resources allocated to heat production from renewables must be massively increased.

One thing is clear: here too, we face some far-reaching decisions if we really are serious about climate protection. For example, we will consistently deploy regulatory law in the interests of the climate. This applies, for example, to the criteria governing the energy efficiency of buildings. However, regulatory law reaches its limits when it comes to the renovation of existing buildings, for example. That is why we undoubtedly need additional budget funds as well. But there are also some proposals on parallel financing: is it really sensible, and is it fair, that - as research by German Environmental Aid has shown - three out of every four large-size sports utility vehicles (SUVs) in Germany, which have very high petrol consumption, are currently being subsidised by the taxpayer on the grounds that they are "company vehicles"? There can't be that many forest rangers or farmers among the purchasers of these carbon-belching vehicles! That is an issue that we also need to look at again.

Crucial: A consistent mitigation strategy for power plants

The key to successful climate protection lies in the energy sector. We are utilising the European Union's Emission Trading Scheme (EU ETS) for this purpose. Emission trading is a market economic instrument. It puts a price on the overexploitation of the environment. Previously, the profits from this overexploitation and destruction were privatised, whereas the costs of hurricanes, devastation or flooding were borne by society. But now, an emissions allowance has a price and this price is factored into commercial calculations.

The energy industry accounts for 40% of Germany's total greenhouse gas emissions. Since 1999, emissions in this sector have increased by more than 30 million tonnes. This shows that the measures adopted in this sector to date have not been sufficiently effective. For example, the first allocation plan set a reduction target of just two million tonnes of CO2.

The Federal Government has adopted a radical change of course here. With the Allocation Law adopted by the Federal Cabinet last week, the emissions volume available to power plants will be drastically reduced by 57 million tonnes. I freely admit that in the debate with Europe about this process, we have all climbed a steep learning curve.
And we will not stop here. After 2012, Europe will further reduce the volume of emissions so that it genuinely achieves the targets set. In order to avoid windfall profits, the auctioning of emissions allowances is the only sensible option here. Whether and to what extent we start auctioning 10% from next year is an issue which the German Bundestag will have to decide upon when it debates the Allocation Law 2012. There are many arguments in favour, especially the great need to invest in climate protection.
The task now must be to make European emissions trading a truly European instrument:

• We need more transparency in the procedures and the setting of the emissions budget,
• The allocation rules must be harmonised in the 27 Member States,
• Aviation should be integrated into European emissions trading in a competition-neutral manner.

The debate about the use of coal

In electricity production, the massive expansion of combined heat and power (CHP) is the most important measure. Cogeneration of power, heat and in many cases cooling makes the most efficient use of energy carriers. In this context, utilising the generated heat via local and long-distance district heating networks is essential. That is why we need to support the expansion of local and long-distance district heating networks to a greater extent. Our aim is more or less to double the share of combined heat and power (CHP) from its current level of around 10% by 2020. By redirecting the current support for existing installations to new, highly efficient schemes, we will be able to cut CO2 emissions by around 20 million tonnes by 2020.

But let's not delude ourselves. We cannot, for the time being, dispense with the use of coal for electricity generation. Between now and December 2012, three large lignite power stations, six hard coal power plants and seven gas-fired power plants with a total output of 12,000 megawatts will be built in Germany.

Replacing old and inefficient installations will make a massive contribution to climate protection. The new power plants are so much more efficient that CO2 emissions into the atmosphere will be cut by as much as 42 million tonnes annually.

Incidentally, anyone relying solely on gas here is pursuing a risky strat-egy. At present, only around 10% of our electricity comes from gas-fired power plants. Lignite and hard coal account for around 50% of our elec-tricity market. If we were to replace coal with gas, this would require roughly a fivefold increase in gas input. That is equivalent to three-quarters of Germany's total gas usage. To use a striking comparison, it is the same as annual gas consumption in Italy! There is not that much gas available on the market, and what's more, it would have significant impacts on electricity prices.

But let me make it equally clear that with emissions trading now in place, there are clear limits to the use of lignite and hard coal for electricity generation, due to the increasing scarcity of emissions allowances. The nightmare scenario of 40 new coal-fired power stations therefore has no basis in reality. In order to achieve Europe's climate protection targets, we will radically reduce the emissions budget for the energy industry once again during the third trading period.

After 2012, there will be just three options for new coal-fired power plants:

• 1. Carbon capture and storage: RWE and Vattenfall have plans to pursue this option. Or
• 2. the electricity supply companies purchase the necessary CO2 allowances through the stock exchange. Or
• 3. emissions allowances are acquired by investing in climate projects abroad.

Massive expansion of renewable energies

In light of the decision adopted by the European Council, a dramatic increase in energy efficiency and the massive expansion of renewable energy are the correct twin-pronged strategy to balance out the decreasing share of fossil fuels in electricity production. Here in Germany, we are already making major progress along this path.

Over the last few years, we have doubled the share of renewables in electricity production. Already, renewable energies in Germany are producing as much electricity as the power company EnBW, and will overtake E.ON within the next ten years.

For Germany, the European Union's target of increasing the share of renewable energies in primary energy consumption to 20% by 2020 means substantially increasing our renewables share. Germany's earlier expansion target under the previous government was just 10%, incidentally. Based on German and European reports, Germany's share of renewables should now increase to 16% in order to achieve the agreed average share of 20% in Europe's primary energy consumption.

What does this mean for the electricity sector? The annual growth rates in the renewables sector testify to a German success story. We will achieve a clear increase in the share of renewables in electricity production from the current level of 12%. The pilot study carried out by the Federal Environment Ministry shows that we can achieve a 27% share by 2020. Until now, the target for the electricity sector was just 20%.

The sleeping giant among renewable energies is the heat market. It offers the greatest scope for improvement as well as massive potential which can be harnessed at low cost. Our aim is to at least double the share of renewables in the generation of heat and cooling by 2020 from the current level of just 6%.

With a Heat Act for the renewable energies, we will stipulate that in both new buildings and the comprehensive renovation of existing buildings, a specific proportion of the heating requirement must be met from renewable energies.

A legislative initiative brought forward by Land Baden-Württemberg pur-sues a similar approach and proposes that a 20% share of the heating requirement be met from renewables. What's more, we want low-cost, intelligent linkage between these measures and energy efficiency. And for existing buildings, we need a massive and dependable increase in long-term funding. The Federal Government will adopt the necessary decisions on this issue before the end of 2007.

The economic opportunities afforded by climate protection

The Federal Government's climate protection strategy offers Germany a great wealth of economic opportunities which, unfortunately, many people are still failing to recognise. We should set ourselves the goal of making Germany the most energy-efficient country in the world.

In future, a country's energy productivity will crucially determine its posi-tion in global competition. Improving the energy efficiency of power plants, machinery, heating systems and cars through the use of state-of- the-art control, measurement and regulating technology will create job opportunities for our engineers and skilled workers in the long term. The key markets of the future are energy and resource productivity and renewables energies. Already, Germany is a leader in the technological development and export of wind power systems and photovoltaics. The export share of German wind plant manufacturers is 75%. It is down to us to establish the regulatory framework and economic incentives that will enable the economic opportunities associated with pro-active climate protection to be fully utilised. Germany has the chance to play the lead role in the key markets of the future. We want to seize this chance.

High standards of energy efficiency

For the key markets to develop in this direction, they need clear framework conditions. In a functioning European single market, it is the European Union's task to establish the requisite criteria for high standards of energy efficiency. Domestic electrical appliances, electrical drive systems in industry, and public street lighting offer the greatest and most viable potential in the short term. Simply cutting electricity consumption by 11% through the use of more efficient appliances will reduce CO2 emissions by 40 million tonnes.

Within the European Union, the Federal Government will work to ensure that decision-making procedures are speeded up and that binding efficiency standards are swiftly established for all product groups. These standards must be based on the best available products on the market.

However, the Federation, Länder and local authorities also have a key role to play here. Every year, the goods and services on the public sector's shopping list amount to 250 billion euros - equivalent to 13% of gross national product. The Federal Government will therefore set a good example and redesign its procurement criteria in favour of energy-efficient products. That means taking greater account of energy efficiency alongside initial purchase costs.

Buildings renovation

When measured against current technical standards, in energy terms, most buildings have as many holes as a Swiss cheese. Properly renovated buildings and modern heating technology can more than halve German citizens' average heating costs. We want to double the annual buildings renovation rate on the basis of stringent efficiency standards. The Federal Government will amend the Energy Saving Ordinance in order to achieve a 30% increase, on average, in the energy efficiency standards applicable to new and refurbished buildings. In a second phase, the standards will be tightened again by the same order of magnitude.

Transport

Transport accounts for around a quarter of energy consumption, with the highest growth rates occurring in the aviation sector. The Federal Government therefore supports the competition-neutral integration of aviation into European emissions trading.

Cutting vehicles' fuel consumption is at the top of the Federal Government's agenda. Before the end of this year, the Federal Government, in cooperation with the Länder, will bring forward legislation to reform our system of vehicle taxation. In future, it will not be engine size but CO2 emissions which will determine the level of vehicle tax to be paid; vehicle tax will also be dependent on the pollution class, as before.

At European level, the Federal Government is pro-actively driving forward the debate about upper limits for CO2 emissions from vehicles. We support the Commission's target of permitting average CO2 emissions from cars of just 120 g CO2/km by 2012. The European car industry's failure to adopt a voluntary commitment here must not be without consequences. We want to achieve most of this CO2 reduction through vehicle and motor technology. However, a further emissions cut of up to 10 g CO2/km can be achieved through the commitment to incorporating bio-fuels into petrol and diesel. The primary goal is to create a market economic incentive for the automobile and oil industries to invest in bio-refineries for synthetic fuels. It is only these synthetic fuels which will genuinely shift us "away from oil" in the long term and avoid competition with food production at the same time.

And finally, clear and simple labelling with fuel consumption information will help drivers make their purchase decisions. The Federal Government will put forward proposals on this issue.

Of all transportation segments, the railways - Die Bahn - has the best climate record. For a passenger travelling by train from Berlin to Munich, the journey produces just 33kg of CO2, compared with three times as much by car. And air travel on the same route has a climate impact almost five times higher. Against this background, the question which we must address is how we can improve the competitiveness of train services from a climate perspective.

Individual responsibility

Combating climate change and the resturcturing of industrial society which this entails can only be successful if the Federal Government over-all, but also the Länder, the local authorities, the business community and society all take on their share of responsibility.

However, citizens can also make a significant contribution to climate change through their behaviour. Energy saving is so simple and worth-while. Opening all the windows for short periods to air our homes thoroughly enables us to save on heat energy. Unplugging the television every night saves on standby losses. And we can substantially reduce our electricity consumption if, when buying fridges, computers and light bulbs, we make it a priority to look at the energy consumption of the appliances concerned.

International climate protection

Germany is the largest industrialised country in Europe. Other countries will be monitoring very closely how successful we are in combining ambitious climate protection intelligently with successful economic development. That is why we should set the pace and drive innovation in this process. This is precisely where Germany can play a leading role in international climate protection. No industrialised country - and certainly no newly industrialising country - will sign up to a new climate agreement if it entails a loss of prosperity.

And conversely, if we are successful, this will give maximum and urgently needed impetus to the international climate process. We need the official go-ahead for comprehensive negotiations at the Climate Change Conference in Bali in December. Only if these negotiations can be completed on schedule by 2009 will it be possible for the follow-up agreement to the Kyoto Protocol to enter into force on time by 2013.

So it is crucial that the USA and the other industrialised countries, but also the newly industrialising countries, participate in this process. If we succeed in breaking the deadlock between the United States and some industrialised countries on the one hand and newly industrialising countries on the other, the chances don't look bad. I am quite optimistic.

A new security partnership for the conservation of the natural bases of life

For the first time, the United Nations Security Council has focussed on the issue of climate protection. Global security in the 21st century will be determined to a large extent by energy supply security and the conservation of the natural resources that are vital for life. With increasing aridity and desertification, the basis of people's food supply is coming under threat in many countries.

Already, millions of people are migrating from their home regions in search of water and pasture. Armed conflicts over access to energy and water are therefore threatening world peace to a hitherto unprecedented degree.

So we need a global security partnership as advocated by the German Federal Foreign Minister at the Munich Conference on Security Policy. The outcome of this partnership will be the conservation of our vital natural resources for future generations.

But we also need to help the developing countries adapt their agriculture and infrastructure to the climate change that is already occurring. The greenhouse gases which are interacting in the atmosphere today were emitted by the industrialised countries. They therefore have a moral responsibility to assist the developing countries in the adaptation process.

In Germany too, adaptation to climate change is an issue which will increasingly preoccupy the Federal Government. This applies, for example, to agriculture in Eastern and Northern Germany, which will be increasingly affected by drought in spring and summer.

But for many countries which are already suffering from drought and water scarcity or are at risk from rising sea levels, their sheer survival is at stake. If we can provide effective assistance to the developing countries in adapting to climate change, we will prevent entire regions from being destabilised by the exodus of millions of people searching for food and water. So we will be looking at innovative financing mechanisms, such as those which already exist in France, the United Kingdom and the Netherlands. This income can then be used for climate protection measures in developing countries.

For the forthcoming G8 Summit in Heiligendamm, to which the major newly industrialising countries are also invited, the Federal Government has made climate and energy a priority issue. Let me, at this juncture, thank the Federal Chancellor once again very warmly for putting the issue of climate protection at the very top of the international political agenda. Our joint task - despite the disputes over some of the different policy tools - will be to recognise the historic dimension of this global challenge facing humanity and to take resolute action now.

Never before has the time been so right for a resolute climate protection policy. Never before was the international community so determined and united in its intention to take firm action. Never before were people so willing to participate because they see the benefits for their budget and their quality of life. Never before were the economic opportunities so obvious for an export-oriented industrialised country like Germany, whose companies are in the best possible position to operate in climate protection oriented markets. That is the mood of the moment. The time is right, so let's use this to the full, in the interests of our country and the people who live and work here.

Further Information:

• Background: Climate Agenda 2020 - Restructuring Industrial Society