Why Is Coal Still Being Phased Out?

The phase-out of coal-fired power generation decided and pursued in Germany on the grounds of climate policy is proving to be increasingly questionable in terms of energy policy. It makes neither an internationally proportionate contribution to CO₂ reduction nor an economically convincing contribution to climate-friendly electricity generation at national level. In any case, security of supply will continue to favour an energy mix with coal in the foreseeable future.

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Coal phase-out – energy policy question marks

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At the end of 2023, the Federal Network Agency surprised everyone by vetoing the further decommissioning of coal-fired power plants before 2031. These capacities would be needed at least until then for the so-called grid reserve of the energy transition, i. e. the national coal phase-out “ideally” envisaged by the current federal government by 2030 cannot be realised (1). The new “power plant strategy” in the form of the construction of approximately 25 GW or around 50 or more large new, hydrogen-capable (H₂-ready) gas-fired power plants, which has been announced as an alternative for some time, even specifically by mid-2023, has not yet been implemented and can no longer be realised by 2030. In addition, the federal and state governments lack the budget funds for the necessary investment framework of at least 20 bn €. (2)

As the winter of 2023/24 once again impressively demonstrated, the fossil fuel coal in Germany continues to make a significant contribution to the security of the national electricity supply, including heat supplies and system services, in addition to its other uses in the raw materials industry. After the final nuclear phase-out in Germany in spring 2023, the German electricity supply can only be guaranteed by the existing coal-fired power plants and supplementary conventional gas-fired power plants despite the increasing share of renewable energies – now over 50 % – due to the volatility of wind power and photovoltaics (PV) depending on the weather, season and time of day (Figure 1). In addition, there is now a persistent surplus of imported electricity, primarily from French nuclear energy. Electricity and energy supply security without conventional energies as a “backup” remains impossible for the time being.

Nevertheless, the coal phase-out in Germany is still considered a political decision. For local and international climate activists and their political and media sounding board, the coal phase-out is a prioritised, unquestionable and loudly advocated “must-have” of climate policy (Figure 2). After all, coal is the “dirtiest” energy.

The question, however, is whether a total phase-out of coal-fired power generation, as envisaged by the Coal Electricity Termination Act (KVBG), is still viable in terms of energy policy. The KVBG’s 2020 target of gradually reducing coal-fired power generation in Germany and phasing it out completely by 2038 at the latest still applies (Figure 3). In addition to the shutdown of all existing lignite and hard coal-fired power plants in Germany, the end of coal-fired power generation will also result in the phasing out of lignite mining, following the complete closure of the domestic hard coal mining industry in 2018. For the Rhenish mining area in North Rhine-Westphalia, a political agreement has already been reached to end the generation of electricity from and extraction of lignite by 2030.

The main reason for this is climate policy. According to § 2 (1) KVBG, the main aim is to “reduce emissions while ensuring a secure, affordable, efficient and climate-friendly supply of electricity to the general public.” (3) However, there are now compelling reasons against this:

• German coal capacities have already been significantly r­educed.
• German coal-related CO₂ emissions have fallen disproportionately.
• In future, conventional power plants will be used much less in a balancing and reserve function with much lower emissions.
• Remaining CO₂ emissions can be offset by Carbon Capture Utilisation and Storage (CCUS) technology.
• This solution would be more cost-effective with coal than natural gas and hydrogen power plants.
• This would considerably increase the security of electricity supply.

The most recent World Climate Conference from 30th November to 13th December 2023 in Dubai (COP28) once again formulated the goal of a “transition away from fossil fuels in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”, but at the same time recognised that “…transitional fuels can play a role in facilitating the energy transition while ensuring energy security.” Agreements reached at COP28 with Germany’s consent include “accelerating efforts towards the phase-down of unabated coal”, i. e. phasing out coal use without emission-reducing measures, but also “accelerating zero- and low-emission technologies”, which include not only renewable energies, but also nuclear power and hydrogen technologies, as well as “abatement and removal technologies such as carbon capture and utilisation and storage, particularly in hard-to-abate sectors” (4) – which objectively also includes the continued use of coal with so-called CCS technology, where this appears economically necessary.

Frank Hennig also raises the question of whether the label of “freedom energies”, which is attributed to the naturally highly fluctuating, enormously resource-intensive renewable energies of wind power and PV, is not much more applicable to coal, especially domestic lignite? After all, what requirements would freedom energies have to fulfil? “They would have to be weather-independent, secure and stable, capable of meeting fluctuating demand, inexpensive, non-sanctionable, independent of fluctuating world market prices, require little transport, and be environmentally friendly and low-emission. The latter is fulfilled by the recultivation facilities and environmental standards for power plants in Germany, and with CCS also climate neutrality.” (5) At the same time, hard coal imported from a broadly diversified, logistically well-developed world market has also proven to be the “guardian angel of energy supply” in the recent energy crisis, not only allowing flexible power plant operation, but also being cheaper, more stable and more climate-friendly compared to the envisaged increase in gas imports in the form of liquefied natural gas (LNG). (6)

The author of these lines already pointed out in 2019 – at that time still referring to the final report of the so-called Coal Commission and its recommendations – that the planned coal phase-out was an “energy and regional economic adventure” due to various uncertainties (7). In 2022, against the backdrop of the European energy and natural gas crisis triggered by the ­Russia/Ukraine war, he argued in favour of “suspend(ing) the coal phase-out” and giving the transition in the coal regions more time (8). In 2023, he analysed in detail the various, complex and difficult-to-balance requirements that the guiding principles of a sustainable economy place on the coal phase-out (9). In light of new developments, he has since come to the conclusion that continuing to implement the coal phase-out in the manner envisaged by the KVBG would be a mistake in terms of energy policy. From a regional economic perspective, the identified structural policy support needs of the coal regions already affected by closures and those that will remain active for the time being would remain largely unaffected.

However, decisions to this effect would have to be made as soon as possible, as the power plants are running at full capacity and the opencast mine planning for lignite is – as required by law – geared towards decommissioning. The first review of the coal phase-out and its effects, which was legally scheduled for 15th August 2022 in accordance with § 54 para 1 KVBG, was still overdue at the beginning of 2024. All that was presented by the federal government was an evaluation of the Substitute Power Plant Standby Act, according to which the withdrawal of lignite-fired power plants from security standby to secure the electricity supply in view of the electricity and gas supply crisis that occurred in 2022 with the Russia/Ukraine war. However, the special authorisation for the lignite-fired power plant units Jänschwälde E and F in the Lusatian coalfield and the units Neurath C , Niederaußem E and Niederaußem F in the Rhineland coalfield – which had to run partially at full load in the winter of 2023/24 – to be taken out of the supply reserve in accordance with the Supply Reserve Call-off Ordinance (StrAAV) will expire on 31st March 2024. In accordance with the key point agreement concluded between the federal government, the state of North Rhine-Westphalia and RWE AG on the early lignite phase-out in the Rhenish mining area and the associated key decision on the remaining mining operations, the Neurath D and E units will also be decommissioned on 31st March 2024, which is of course already the basis for the opencast mine planning. The additional hard coal-based capacities made available from the grid reserve in accordance with the Electricity Supply Expansion Ordinance (StrAAV) are also only permitted until 31 March 2024.

In addition, the phase-out schedule regulated by the KVBG via agreements (lignite) and tenders and regulations (hard coal) applies. As a result, more than half of the 30 GW of coal-fired power plant capacity still available in Germany would be taken off the grid by 2030 in any case. All of them by 2038 at the latest. After the total nuclear phase-out would come the total coal phase-out.

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Climate protection, German coal-fired power and proportionality

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The question of whether the coal phase-out in Germany is in line with the goal of climate protection, which as a global problem can only be solved globally, is justified and in line with the rational principle of proportionality.

As is well known, the German government is pursuing very ambitious climate policy goals in the form of significant and ultimately complete reductions in greenhouse gas emissions from the German economy as a whole, especially CO₂ emissions. In fact, the national greenhouse gas reduction targets to date have been met, most recently the 40 % target by 2020 compared to 1990. The most important factor here was the reduction in emissions in the energy sector (electricity generation and district heating). In all other sectors (industry, buildings, transport, agriculture) there were also significant reductions, but not to the same extent. By 2023, a total reduction in energy-related CO₂ emissions of around 45 % was achieved, most recently despite migration-related population growth as a result of declining economic activity, which was also dampened by high energy prices.

If we focus on national CO₂ emissions by energy source, it becomes clear that the reduction successes to date are primarily due to the decline in emissions from coal (Figure 4). By 2023, CO₂ emissions – from both lignite and hard coal – had fallen by 59 % in each case, while those from the hydrocarbons mineral oil and natural gas together had only fallen by 19 %. This is all the more remarkable given that mineral oil and natural gas are the most important energy sources in Germany’s total primary energy consumption (PEC) and together account for almost 60 % (mineral oil 36 %, natural gas 24 %), while the total share of coal (lignite and hard coal) only accounts for 17 % (10). Conversely, this means that the potential for further CO₂ reductions in Germany from coal, which is mainly used in electricity generation, is very limited and that emissions from mineral oil and natural gas in particular – i.e. in sectors other than electricity generation – would have to be drastically reduced. There are no explicit phase-out targets for mineral oil or natural gas (yet).

At the same time, it must be noted that all previous efforts in Germany to reduce CO₂ emissions have had no noticeable impact on the global development of CO₂ emissions, either in terms of direction or scope (Figure 5). While emissions in Germany have fallen by almost half since 1990, they have risen by a good two thirds worldwide. The particularly strong decline in German coal emissions contrasts with a particularly strong increase in global coal-related CO₂ emissions, if you look at the latest figures from the Global Carbon Project, which was set up by an international group of climate scientists as an inventory, so to speak (11). The latter is not surprising, as it must be noted that global coal consumption is by no means declining, but rather has risen to a new record level of more than 8.5 bn t in 2023, with China alone accounting for more than half of this (12) (Figure 6). Almost one in two of the 2,500 coal-fired power plants worldwide are located there. In China, in addition to the installed 1,200 GW of coal-fired power plant capacity – 40 times that of Germany – more than 100 GW of new capacity is currently being planned. This is around three times the amount that will be phased out with the coal phase-out in Germany.

The very small impact of the German energy transition, including the coal phase-out, on global climate protection is manifested in Germany’s share of global CO₂ emissions, which now stands at just 1.8 % (0.4 % from coal-fired electricity) (Figure 7) – orders of magnitude that would be completely offset within less than two years, even if they were reduced to zero, ceteris paribus by the trend in global development.

In the German energy debate, little attention is also paid to the fact that the long-term goal of climate neutrality under the Paris Agreement does not necessarily mean a 100 % reduction in greenhouse gases, and certainly not by 2045. According to Art. 4, Para. 1: “In order to achieve the long-term temperature goal set out in Article 2, parties shall endeavour to achieve global peaking of emissions of greenhouse gases as soon as possible … and to achieve rapid reductions in accordance with the best available scientific evidence thereafter, with a view to achieving a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century.” This means the obligation not to cause more greenhouse gases worldwide in the second half of the 21st century, i. e. after 2050, than can be absorbed by natural sinks. In its reports, the Intergovernmental Panel on Climate Change and the Global Carbon Project point out that more than half of global anthropogenic greenhouse gas emissions, most recently 57 %, are absorbed by land plants and the oceans. Of the 40.3 bn t CO₂ anthropogenically caused by the use of fossil fuels and land use changes in 2023 according to the Global Carbon Project, 23.8 bn t were absorbed by natural sinks and 16.9 bn t were released into the atmosphere (Figure 8). Climate neutrality therefore does not require zero emissions, but a global reduction of 40 to 50 %, i. e. on average roughly halving the current level of emissions.

However, this is a reduction that has already been achieved to a considerable extent in Germany, which has long been a pioneer. The extreme ambition level of 100 % set by German climate policy is therefore objectively unjustified, even if all the reductions already achieved at national level were to be disregarded.

In practical terms, the coal phase-out in Germany therefore contributes almost nothing to global climate protection. It is a completely different question what global contribution Germany could make if it were to demonstrate how coal could be used in the energy mix in a climate-friendly way. This leads to the question of CCUS technology.

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CCUS technology

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The Ethics Commission “Secure Energy Supply” set up by the German government in 2011 after the Fukushima disaster already spoke out in favour of the use of CCS or CCU and a “high-tech programme for clean coal” based on it and the valorisation of CO₂ in economic cycles to accompany the nuclear phase-out in Germany (13). However, this explicit recommendation of the Ethics Commission has so far been largely ignored in the German energy transition debate; CO₂ storage was even practically banned in Germany soon afterwards due to a lack of acceptance, although there were already promising, technically successful approaches, such as the Schwarze Pumpe pilot plant at the Ketzin pilot site (14) (Figure 9).

As mentioned above, CC(U)S technology consists of processes for capturing CO₂ from industrial or energy point sources such as the exhaust gas streams from power plants, industrial factories or waste incineration plants and storing it underground in deep rock layers so that it cannot be released into the atmosphere. If the CO₂ is fully or partially utilised as a raw material and bound in products, for example in the chemical industry for synthetic plastics or fuels, this is referred to not only as CCS, but also as CCU or CCUS.

In the meantime, the CCS issue has returned to the national and international debate, as expressis verbis at the COP28 in Dubai, especially as not only a number of large countries, the USA and China, but also the Intergovernmental Panel on Climate Change, the IEA and the EU Commission see CCUS technology as an important climate policy option. According to the International Energy Agency (IEA), the momentum in favour of CCUS technology has grown enormously in recent times. The IEA explains that state-of-the-art CCUS technologies are generally suitable for “capturing” CO₂ emissions from large point sources such as industrial plants and power stations. If the captured CO₂ cannot be used in the plant itself, i. e. on-site, it must be transported in compressed form by pipeline, train, lorry or ship for other direct or indirect uses or, if and as long as there is no use for it, it must be stored permanently in deep geological formations such as disused oil or gas fields or saline aquifers. Incidentally, CO₂ injections have always been used to improve the exploitation of oil fields (enhanced oil recovery), meaning that tried and tested processes can be utilised here. The IEA therefore recommends that the energy policies of its member states, including Germany, not only promote research, development and innovation for the future use of CCUS, but also that the application be scaled up now, that a better understanding of the possibilities of its use be supported, that market opportunities be identified and facilitated as early as possible, especially in suitable energy and industrial clusters, and that CCUS criteria be included in public procurement regulations. There are currently around 500 projects worldwide along the entire CCUS value chain (Figure 10). But the potential is considerably greater.

Even the German government now sees potential applications for CCS, but unlike other energy policy actors in the world, it does not initially recognise it as an argument for the long-term continued use of fossil fuels, but only for dealing with “residual emissions” from industries, such as cement production, where CO₂ emissions remain unavoidable. With this in mind, it is currently working on an active “carbon management” strategy and fundamentally and explicitly shares the view that CCS and CCU can form “building blocks for a climate-neutral and competitive industry”. However, the power plant sector is excluded without there being any factual justification for this. (16)

A key reason for the change in the acceptance assessment of CCUS technology in Germany is probably that the planned CO₂ storage is no longer focussed on onshore storage, where local conflicts would continue to be feared, but on submarine CO₂ storage in the North Sea. With the exception of Germany, all countries bordering the North Sea are already pursuing various specific CCS projects involving CO₂ storage in the deep North Sea floor. Norway has been a pioneer in this field since the 1990s and is now expanding its infrastructure for this purpose, for example in the Northern Light project, offering itself as a CO₂ storage centre for the entire EU. However, the UK, France, Belgium, the Netherlands and Denmark are also on the road to CCS expansion. The UK alone has announced that it will initiate investments of around 20 bn £ in CCS projects over the next 20 years. Denmark and Belgium jointly launched the first cross-border European pilot project “Greensand” in March 2023. Belgium is also planning its own complete pipeline network to “export” collected CO₂ below the sea surface in order to become a Northern European hub for CCS. Germany is also expected to participate in this in the future. Another question is whether this will also relate to power plants in terms of infrastructure, as is the case in the UK, for example. (17) Technically, there is nothing to be said against it, nor economically in comparison with other climate protection options, as will be shown later. For the time being, however, an ideological blockade remains.

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Major challenges for electricity market functioning

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The German energy turnaround is focussing on a complete shift away from the previous energy mix in power generation, which for a long time was predominantly based on nuclear power, coal and natural gas, towards relying more and more on renewable energies, especially wind power and PV. In the coming years, the expansion of renewables is to be systematically driven forward at an accelerated pace. How realistic these expansion plans are in view of foreseeable economic bottlenecks in terms of capital, materials and personnel will not be discussed here. It is only worth pointing out the huge increase in raw material and land requirements for the power supply. Instead of the area of a football pitch, e. g., required by a coal-fired power station, almost 1,800 football pitches would be needed for the same amount of electricity generated by wind power. (18)

Due to the volatility of renewables, however, controllable power plant capacities are required even if they are further expanded. As these “climate-damaging” existing coal and gas-fired power plants are no longer to be used, the only alternative currently being sought in terms of supply policy is the construction of new H₂ -ready gas-fired power plants. So far, there is only one small 123 MW pilot project in Leipzig, but there are no concrete construction plans or even initiated construction measures by the energy industry. The plan for a new power plant strategy announced by the Federal Ministry for Economic Affairs and Climate Action (BWMK) at the beginning of 2023, but until the end of the year not yet presented, specifically envisages the addition of 8.8 GW of pure hydrogen power plants and a further 15 GW of new, so-called hydrogen-capable gas-fired power plants, 10 MW of which are to be completed by 2026. In addition to the economic conditions, it remains unclear how the necessary hydrogen infrastructure will be provided by then. Apart from the increasingly critical time and cost factors of this plan, there are considerable doubts as to whether its basic assumptions are correct, as shown by the much-noticed e.venture study “Future of the German electricity market” published in autumn 2023 (19).

This study thoroughly investigated the effects of a decarbonised electricity system that completely dispenses with existing coal and gas-fired power plants – and nuclear power plants that have been decommissioned or new ones built anyway – on investments, market design and security of supply. It assumes that the electricity demand in Germany is likely to increase considerably as a result of the planned transformation towards full electrification of the industrial, heating and transport sectors, namely by 31 % by 2030 and 67 % by 2040 to 943 TWh/a compared to 2021 (Figure 11). However, a controllable safeguarding of the planned renewable electricity generation would require not just 25 GW, but 75 GW, i. e. a good three times as much, of new H₂ -ready gas-fired power plants to be built or converted, unless recurring shutdowns or uncertain dependence on large-scale electricity imports are to be accepted (Figure 12). Other studies would arrive at lower investment requirements, but overestimate the flexibility of demand and supply by orders of magnitude.

The e.venture study has also made it clear that in a system based solely on renewable energies and H₂ -ready gas-fired power plants or hydrogen power plants, the marginal costs of electricity generation and thus electricity prices will increase significantly in the long term (higher system costs will be added), even if the security of gas supply is not impaired and there are no temporary price increases on the gas market in 2022/23 (Figures 13, 14).

The latter is a bold assumption in view of the long-term dependence of German and EU gas supplies on LNG imports from overseas and the geopolitical risks on the international gas markets (20). It is even clearer that gas-fired power plants supplied by LNG imports do not represent an advantage over coal-fired power in terms of the CO₂ equivalents of the entire supply chain from a climate perspective, but rather a disadvantage, as the Howarth study for LNG exports from the USA has shown (21). This comparison does not even take into account virtually CO₂-free coal-fired power generation with CC(U)S (Figure 15).

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A simple calculation of climate-friendly electricity generation costs

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Climate-friendly power generation from coal with CC(U)S as part of the energy mix would not only offer considerable advantages in terms of security of supply compared to a power plant strategy that only relies on gas in combination with hydrogen, but also from an economic point of view as things stand. A simple calculation example is presented below, which is quite rough because it does not include economic scenarios and bandwidth estimates, but is based on robust, realistic assumptions and clear statements on the electricity costs per kilowatt hour.

The electricity costs from the use of lignite, hard coal and natural gas in CCGT plants or with a single turbine are compared with those of hydrogen power plants. Not included are decommissioned nuclear power plants, which at around 2.5 Ct/kWh could have provided by far the most cost-effective climate-friendly electricity generation, but have been history in Germany since April 2023. There is currently no reliable cost estimate for new nuclear power plants or the new generation of nuclear power technology under the current framework conditions. This may of course change in the future as a result of further developments.

The benchmark is also the current electricity generation costs of wind power and PV according to their minimum and final tariffs of 7.35 and 7 ct/KWh respectively, for which production can be assumed to just cover costs on average. Individual locations may have lower production costs due to favourable weather and/or geographical conditions. However, an economically appropriate comparison of generation costs also requires the inclusion of the higher system costs compared to existing coal and gas-fired power plants, for which the CO₂ or CO₂ avoidance costs must be added. These system costs relate to the necessary backup or storage capacities, balancing energy and curtailment requirements, additional grid expansion and redispatching, which result from their natural volatility and decentralised nature. In the German electricity supply system, however, they are reflected in the grid costs and charges, not in the direct production costs and the electricity market price. With regard to a fully decarbonised generation system, these system costs were already estimated a few years ago to increase by up to 8 Ct/kWh if all existing conventional capacities are decommissioned (22). The full costs for wind and solar power would therefore amount to around 15 Ct/KWh. Continued operation of coal-fired power plants with CCS would probably be more favourable and could considerably reduce electricity costs and prices in the future.

The following electricity cost calculations refer to a presentation by Vahrenholt based on industry data from autumn 2023 (23) and the e.venture study, in which the additional costs for CO₂ and CCS have been independently extrapolated. No precision is asserted or claimed, but merely a realistic estimate of orders of magnitude for comparison purposes. According to Vahrenholt, the full CCS costs for transporting and permanently storing CO₂ in basalt rock, as is currently being demonstrated in the Carbfix project in Iceland, can be estimated at between 60 and 80 €/t CO₂. This is below the CO₂ prices in the European CO₂ emissions trading system (ETS), which were just over 80 €/t CO₂ at the end of 2023 and are likely to trend upwards in future due to the planned further rationing. The mathematical comparison should therefore be based on CCS costs of 60 and 80 €/t CO₂ respectively and an assumed future CO₂ price in the ETS of 100 €/t (Table 1).

Whether and to what extent the cost assumptions used here actually apply under specific conditions must be verified – which, surprisingly, has not yet been officially done anywhere in this form. Of course, technical and economic progress may change the specific values in the future and possibly lead to lower costs. But of course this applies to all options. If the assumptions as shown in Table 1 are more or less correct, hydrogen remains the most expensive option and H₂ -ready gas-fired power plants are also too expensive in the long term, not least compared to climate-friendly electricity generation based on conventional power plants with CCS. Natural gas would only be cheaper than coal if CO₂ prices were high. But coal with CCS is and remains cheaper than natural gas with CCS, provided the assumed CCS costs are realistic. If this is the case, the key question from an economic perspective is indeed: Why is Germany still pursuing the phase-out of coal-fired power generation?

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Conclusion

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Since, according to the analysis presented, phasing out coal-fired power generation in Germany makes neither an internationally proportionate contribution to CO₂ reduction nor an economically convincing contribution to a climate-friendly electricity system at national level, it should be urgently reconsidered. The development of CC(U)S technology is a game changer. The legally pending, long overdue review of the coal phase-out provides a purely formal reason for this. The situation demands it even without this. This should have corresponding consequences for the new national power plant strategy, which should also include existing coal-fired power plants or keep them running and equip them with CCS. This in turn should lead to course corrections in energy policy decisions for domestic lignite mining and hard coal imports. This is by no means a fundamental plea against the further expansion of renewable energies, but a vote in favour of an economically more sensible, more balanced energy mix in which coal will continue to play a role in the future. Similar considerations could be made for domestic natural gas, but this was not the subject of this study, nor was the question of a possible re-inclusion of nuclear power. It is clear that with an increasing share of renewables, the role of coal in electricity generation will be further reduced. However, a balancing and reserve function remains necessary and coal fulfils this better and more cost-effectively than a backup based entirely on natural gas or even hydrogen. This also does not stand in the way of the structural policy support measures introduced for the German coal regions, because firstly, a number of power plant closures have already taken place and, as the first evaluation of the Coal Regions Investment Act already available shows, these regions still have a relatively high need for structural policy catch-up and support, apart from the fact that the success and duration of many transition projects envisaged is still largely open. (24)

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