How Britain beat Germany in the race for green energy

In the UK there is now considerable euphoria around decarbonisation. This is, to say the least, a surprise. In the 19th century Britain led the world into the era of fossil fuels, and as recently as 10 years ago it lagged far behind in the energy transition compared to other large European countries. Way back in the 1970s, France had gone the whole hog for nuclear. Under Gerhard Schröder’s Red-Green government in the late 1990s and early 2000s, Germany had pioneered solar and wind and ambitious energy efficiency standards for housing. As the 21st century began, Britain was still an island of coal surrounded by seas of oil and gas.

Yet today, the UK’s per capita CO2 emissions are almost 40 per cent lower than Germany’s, the country that “progressive” Britons almost reflexively assume does everything “better than us.” The UK is a world leader in offshore wind power, one of the most promising sources of renewable energy. The UK parliament was one of the first to commit to net zero carbon emissions by 2050. The Labour Party went into the December election espousing a Green New Deal more radical than anything envisioned by the German Greens. And though the Labour conference resolution of zero emissions by 2030 may be unrealistic, the end of coal-fired power generation in the UK is in sight—years ahead of Germany.

Energy experts boast about the clear-headed design of Britain’s 2013 electricity market reform, which established a price floor for carbon and efficient auctions for renewable capacity. This contrasts with the chronic muddle in German energy policy. But such technocratic self-congratulation is at risk of underplaying accidents of geology and geography, the same ones that made the UK into a fossil fuel giant in the first place. They also underestimate the legacy of history—specifically, Britain’s painful economic and social restructuring in the 1980s and 90s. This weakened the established national interests that defended coal, and created an energy sector dominated by transnational corporations highly responsive to policy incentives and market signals. This has enabled some quick wins, even if its ability to facilitate the deep decarbonisation required ahead remains to be seen.

Old kings’ coal

In the last century Britain and Germany were the pre-eminent coal powers of Europe. Coal, the most poisonous of fuels for the climate, was the foundation of their national economies and their international power. It was not by accident that the coal industry was nationalised by the 1945 Labour government, or that France’s effort to corral Germany’s power began with the European Coal and Steel Community. Mineworkers were a power in the land. In Germany they led the demand for workers on boards. In 1974 when Ted Heath asked the electorate whether it was Downing Street or the miners who ruled Britain, the voters showed him the door.

But when the Tories returned to power in 1979, breaking the nexus between energy and labour was a priority for the right. The path to privatisation and liberalisation, which soon became the norm in Europe, was first bulldozed in Britain through the defeat of the mighty National Union of Mineworkers (NUM). By September 2019, as a left-wing Labour Party conference adopted the Green New Deal and cheered the end of coal-fired power generation, the epic strike of 1984-5 had been consigned to another age. Nowhere else in Europe was the rollback of industrial labour more dramatic.

The contrast with Germany is stark. Within the last year, Chancellor Angela Merkel has been personally involved in month-long negotiations over the final phasing out of coal, talks that involved not only the electricity utilities but also mining unions and coal communities. The shareholders in the lignite burning power stations of western Germany—some of the most polluting in Europe—include local government. In the eastern coalfields the mainstream parties of Germany fear the upstart, hard-right AfD, which is fashioning itself as the voice of climate scepticism. It is this dense web of interests that decided that Germany should not exit coal before 2038, and with a pot of €40bn to cushion the transition.

In Britain, the breaking of the NUM opened the power sector to radical change: the tight connection between the coal fields and the power generators was prised apart. It then fell to natural gas flowing from the North Sea to do the rest. Up to the 1990s gas was not widely burned to generate electricity, but then a new generation of gas turbines derived from aircraft engines transformed things. These compact, fast-revving power units could be switched on and off at short notice to meet the demands of the new spot market in power. The “dash for gas” ended the monopoly of more-polluting coal in electricity generation. In the late 1990s New Labour somewhat cushioned the blow to coal by slowing the transition to gas. But there was no retreat from the path of deindustrialised economic growth laid out in the 1980s. And in effect, the 2003 White Paper on “creating a low carbon economy” proposed walking the country further down that path.

Soot and sandals

Today the headline emissions figures flatter the UK. It has the largest gap between CO2 produced at home and emissions consumed, importing many manufactured goods from smoke-belching China. In Germany, by contrast, preserving domestic manufacturing has been at the heart of policy, and means it has greater needs for power. The question has been, and continues to be, how those needs can be met. And in answering it, Berlin has inconsistently balanced the dirty demands of industry with an alternative green vision.

Attached to coal, Germany’s dash for gas in the 1990s was less dramatic. But in the 1970s, Germany—like Britain—had made a major investment in nuclear power. However, the result was a spectacular mobilisation of environmental protest leading to the formation of the German Green Party. When the Red-Green coalition took office in 1998, its top priority was to negotiate a cross-party consensus to exit nuclear power generation. Merkel’s famous U-turn on nuclear power in 2011 after the Japanese nuclear disaster at Fukushima merely sped up the rate of decommissioning, bringing it forward to 2022.

The trump card in the Red-Green government’s anti-nuclear energy policy was renewables. The aim was to replace the 30 per cent of electricity generated by nuclear by 2020. To do so, in 2000 the Red-Greens amended the Erneuerbare-Energien Gesetz (Renewable Energy Sources Act) to offer a complex system of subsidised feed-in rates for different classes of renewables, making adventurous technologies into a safe investment.

The effect was dramatic. Germany launched a bottom-up, small-scale energy revolution. Not for nothing is it known as the bürgerliche Energiewende, which, with telling ambiguity, can be translated either as a citizens’ energy transition—or a bourgeois one. Small businesses and property owners across Germany seized the opportunity to add solar panels and small-scale windmills. They supercharged Germany’s rise as an industrial leader in solar and wind power, a sector that at its peak in 2012 employed just short of 400,000 people. They also created a large political constituency for the energy transition, which after 2005 brought Merkel’s CDU on board as well.

German subsidies acted as a global industrial policy for solar and onshore wind, attracting producers from around the world, but above all China, whose solar manufacturers soon prevailed in a global price war. But Germany still has a prominent role in manufacturing equipment for solar cells and sophisticated wind turbines. So successful was the model that Italy and Spain both adopted feed-in subsidy models, as did Britain in 2010, when it sparked a huge surge in small-scale solar energy installation.

But despite its success, Germany’s green energy policy soon found itself denounced as unsustainable. Its Achilles’ heel was its funding model. To avoid raising taxes, which would have collided with EU law on subsidies, the fixed feed-in prices were financed out of a levy on electricity bills. To make matters worse, to protect competitiveness—the be-all-and-end-all of German economic policy—heavy industrial power users were exempt from that levy. The result was a regressive energy tax that fell heavily on poorer households. Meanwhile, well-to-do homeowners and small businesses were subsidised to buy Chinese solar panels and turbines, which on bright and windy days flooded the wholesale market with renewable power, thereby reducing the bills for the big industrial users.

But in the labyrinthine world of energy pricing things are rarely what they seem. Though the green levy made an obvious target for resentment, profiteering by incumbent generators was at least as important in driving up the price of Germany’s energy transition. The Social Democrats were the dominant party in the Red-Green coalition and much as they favoured small-scale renewables, they had no intention of abandoning coal. Billions of euros still flowed in subsidies to hard-coal and lignite mines, and continued even as a surge in oil and gas prices tilted the market in coal’s favour. In addition, the leading utilities received a perverse windfall from the operation of Europe’s emissions trading scheme (ETS). This was designed to make polluters pay, by putting a price on carbon. But for a time, it had the opposite effect. Between 2005 and 2013 the power utilities received free allocations of emissions certificates calculated to match their existing emissions. At the same time, in a free electricity market they were able to pass through to consumers the “cost” of the emissions certificates that they had in fact been gifted, rather than paying for. The result was a windfall running into tens of billions of euros at the expense of Europe’s consumers.

Transition devours its own

With a generation of power stations built in the 1970s having to be replaced around this time, utilities across much of Europe doubled down on polluting coal. In Britain this dash for coal was aborted in 2008-9 by the financial crisis and the Brown government’s turn to a more aggressive climate policy. Germany was not so fortunate. As the International Energy Agency remarked in retrospect, in the early 2000s Germany’s utilities led “one of the biggest investment waves into domestic coal capacities since the post-war reconstruction.” Questions about environmental sustainability were answered by gesturing vaguely towards the always-just-over-the-horizon promise of carbon capture and sequestration. The environmental ministry led by Social Democrat Sigmar Gabriel connived in this green-washing.

The result was schizophrenic. At the same time as Germany’s green pioneers drove a small-scale revolution in renewable energy generation, its utilities positioned themselves as low-cost providers of coal-fired electricity for the booming economies of central Europe. As the renewables share grew at home, Germany’s giant utilities became exporters of cheap, dirty power to the rest of Europe.

It was disastrously shortsighted—not only for the planet, but for the utilities involved. As the recession took hold in 2008, the demand for electricity plunged. The surge in renewable power generation robbed conventional generators of the profits to be made during demand spikes. After Fukushima the nuclear assets on corporate balance sheets had to be written off. In 2013, with the auctioning of emissions certificates, the EU finally ended the windfalls from the ETS, and in 2018 subsidies to the burning of hard coal ended with the closure of the last underground mine, leaving dirty lignite as the main power source.

With their share prices plummeting, Germany’s giant generators faced a battle for survival. While powerful incumbents like RWE began to reposition themselves as leaders in big renewable technology overseas, at home they launched an aggressive attack on the “expensive renewables.” In an era of austerity, high fuel prices made fodder for tabloid journalism whether in the Bild Zeitung or the Daily Mail.

And in Merkel’s second coalition with the free-market, pro-business FDP, those grumbling about the cost of transition found a friendly ear. Talk of a carbon price floor that would have penalised coal power ceased. Feed-in tariffs were dialled back and discussions began on how to cap the taxpayer’s exposure. Onshore wind faced a wave of local protests.

With the SPD positioning itself as the defender of the blue-collar voter, the rollback continued after the party re-entered government in the third Merkel coalition of 2013. A new auctioning system was designed to limit renewables expansion. Whereas the feed-in system of the 2000s encouraged a helter-skelter deployment of small-scale capacity, Berlin now invited bids for fixed slices of renewable capacity, limiting the field to investors able to handle the legal complexities of the auction system. This has effectively excluded smaller solar and wind farm cooperatives. Perhaps they also lacked the necessary guile: many of the auctions have been won by the incumbent generators with price offers so low that they clearly have no intention of building the generating capacity.

In the wind sector, whether onshore or offshore, the uncertainty of the funding regime and legal obstacles to planning permission have brought new investment to a virtual halt. In 2018, German investment in renewables was half of its peak in 2010. In 2019 only a few MW of wind energy generating capacity have been built. Wind turbine producer Senvion declared bankruptcy in the summer, and early pioneer Enercon announced large-scale layoffs in November. The crisis is such that in an unprecedented move, German industry federation BDI and other industry associations joined forces with trade unions to protest against new regulations for wind farms that might make wind development impossible.

In Britain, too, since Labour left office in 2010, funding for small-scale renewable energy projects has faced round after round of cuts. Conservatives representing rural constituencies have pandered to local opposition against onshore wind. The demand to get rid of what David Cameron in some moods called “green crap” has echoed through the pages of the Sun and the Mail. And the government makes clear that competitiveness takes priority. Investment in renewables has fluctuated with the ebb and flow of subsidy regimes and contractual arrangements. The UK’s feed-in tariffs were scrapped.

And yet the policy debate unleashed by the Brown government in 2008 did help to forge a consensus, embraced by Cameron in his more progressive moods and at times Boris Johnson too. The Cameron coalition’s Energy Act of 2013 worked as a mechanism for accelerating private investment in low-cost renewables, and more importantly it ushered in the rapid decline of coal. Rigorous enforcement of pollution standards deterred any new investment in it. The giant Drax power station in North Yorkshire was converted to burning Canadian wood pellets, and the decision to underpin the fluctuating European carbon price with a national floor has remorselessly driven the black stuff out of business.

Carbon pricing may not work well in switching tens of millions of road users from their deeply-ingrained driving habit onto public transport. But when it comes to nudging the behaviour of giant, border-straddling, profit-hungry commercial power companies, every penny truly counts.

Thanks to the combined efforts of the Blairite Labour Party and longstanding supporters on the Tory side, the UK is also one of the few countries seriously committed to a new generation of nuclear. If it ever comes online, Hinkley Point C will cost the UK taxpayer tens of billions of pounds. This will be all the more painful given the remarkably low prices yielded by the contracts for offshore wind, which has emerged as the silver bullet for the decarbonisation of UK power supply. The latest round of bids are promising to be cheaper not only than new gas-fired power stations, but than existing generators. Unlike Germany, which faces the huge challenge of moving wind power generated in the North Sea and the Baltic south to the industrial centres of Munich and Stuttgart, the UK can position wind farms strategically along its coastline.

Green and greedy

What has emerged in the UK is a fast-moving, high-tech, corporate energy transition in which giant German generators like RWE, stymied at home, are playing a leading role. It may be low carbon. But it is far from the dreams of earlier generations, which envisioned a decentralised and democratic energy system—a citizens’ energy transition.

Nor, as the independent Climate Change Committee reminds us, will it deliver net zero. Decarbonising the electricity sector is the easy bit, and removing coal from the system the easiest part. The challenge is to move not just beyond coal and the industrial revolution, but beyond the oil and gas addiction of the second half of the 20th century, beyond hydrocarbons, to go without gas and remove carbon not just from electricity generation but from domestic heating and cooking, from industry and transport. In this respect both Germany and Britain face huge challenges.

For Germany, the next big problem will be the motor vehicle industry. No major economy is more committed to the engineering of sophisticated internal combustion engines. As for the UK, it may no longer have coal mines and its car plants are now foreign owned, but it is the base for one of the world’s major oil and gas fields in the North Sea. It is home to BP and Shell, two of the world’s largest oil companies. If development of the North Sea goes forward as planned, it will negate many times over all the reductions in carbon emissions to be achieved by cutting coal out of the UK’s electricity system. The pressing requirement with such mineral wealth is to “leave it in the ground.” Forgoing wealth is never easy.

Once again it is crucial to focus on corporate actors. The most aggressive developer in the North Sea is the Norwegian state-owned giant Equinor, which is also among the consortia recently awarded an ultra-low-cost offshore wind contract on Dogger Bank. The drive for profit will continue to spur companies—often the same companies—to affect the environment for both good and ill, until public policy sets clear priorities.

The glib conclusion to draw from the Britain/Germany comparison is that Britain’s flexible market economy is proving more dynamic in the green transition than consensual continental politics. That, however, is far too crude an account of the last decade. Britain’s corporate energy sector was built on the ruins of the labour movement. Meanwhile, Germany’s decentralised green boom of the early 2000s changed the world. And Britain only moved from green laggard to green leader because of proactive political decisions made in Westminster from 2008 onwards.

What we can learn from the German slowdown is that how the costs of the transition are spread is crucial, and that perception counts as much as reality. Whenever it suits their interests, corporations and lobbyists will play the “unaffordable renewables” card, while seizing plum opportunities that the green transition has to offer. As the British and American left have argued, to counter this sniping, a broad-based narrative of the Green New Deal is essential.

Looking further ahead, policy is going to have to be much more hands-on. If the hegemony of fossil fuels is to be undone, regulation and carbon pricing will not be enough. We must deflect the strategies of energy corporations like Equinor or RWE. This may involve confrontation. That is the reality that lurks behind talk of industrial policy. As significant as the changes in power generation have been, the push for comprehensive decarbonisation is only just beginning.