Climate Protection

This is possible while maintaining today’s level of industrial production and fully ensuring security of supply, without disruptive behavioural changes. The phase-out requires a fast ramping up of energy efficiency and renewable energy, as well as the electrification of applications in the buildings and industry sectors.

The sectoral transition pathways developed in this report show that based on latest technological progress, an EU greenhouse gas reduction target of 90% by 2040 is realistic. It would avoid 3.3 Gt more greenhouse gas emissions than projected in the EU’s 2020 Climate Target Plan.

By prioritising direct electrification and reserving its use for no-regret applications, the EU would need only 116 TWh of renewable hydrogen by 2030, compared to 666 TWh in REPowerEU. This is more cost-effective, more realistic from a security of supply perspective and consistent with the hydrogen sub-targets in the new Renewable Energy Directive. The REPowerEU target should thus be revised.

(1) A new impact assessment is needed for the EU gas and methane package.

(2) Governments should evaluate the impact of the decline in gas demand on gas supply and distribution infrastructure, and when updating their National Energy and Climate Plans.

(3) The sale of new fossil gas-burning equipment in buildings should end quickly.

By compensating for the initially higher costs of climate-friendly production, carbon contracts anticipate the effects of evolving carbon pricing and enable the industry to implement its green investment plans.

Carbon contracts support this transformation. If appropriately coordinated with other policy measures, the need for financial support is limited to less than 9 billion euros, and green steel can be cost-competitive by 2035.

Running them initially on natural gas will enable a rapid reduction in CO2 emissions and provides a back-up for the use of increasing volumes of renewable hydrogen.

Alongside the rapid implementation of carbon contracts, the EU ETS must be reformed and green lead markets developed so that climate-friendly steel can establish itself as the industry standard.

To efficiently reach its goal, a properly tailored “Coal Commission” must ensure a well-balanced mix of relevant stakeholder interests, formulate a clear mandate, solicit stakeholder opinion, and set a realistic, but flexible timeline.

The political environment and public opinion can either accelerate or impair the consensus-building process. Analysis of the country’s readiness for such a commission and an inclusive policy process is key.

Careful preparation is important for a smooth and efficient process. The flow of information should be transparent and open. Power imbalances and the potential lack of expertise of some stakeholders must be addressed. The set-up must avoid giving any participants the sense they have been excluded or “left out”.

Accordingly, such commissions should not be misused as a forum for “delegating away” poli-tical responsibility or delaying climate action. In addition, members of parliament should be actively involved in order to augment the legitimacy of the proceedings and increase the likelihood that the commission’s recommendations will be implemented.

Producing electricity from renewable energy sources and green hydrogen will cost 15 percent less up

to 2045 than relying on lignite or gas. A full decarbonisation of the region’s power system will require

a total investment of 43 billion euros over 30 years, 12 billion euros more than the fossil baseline. Even if investments are higher, renewables deployment can largely be financed from market revenues.

A reliable yet carbon-free power system can be achieved with a combination of renewables, storage (hydro, batteries, thermal storage) and 5 GW of green hydrogen fuelled power plants. Deeper regional integration can further reinforce security of supply.

The need for more ambitious climate action together with high and volatile fossil gas prices and ever cheaper renewables undermine the business case for new fossil gas infrastructure: any new fossil gas plant risks becoming a “stranded asset”. If the Western Balkan countries invest in hydrogen-ready infrastructure and storage technologies instead, they can reduce cumulative fossil gas demand by 50 percent up to 2045 while cutting overall costs by 12 percent compared to a strategy that bets on fossil gas to replace aging lignite.

Greater energy storage capacity enables rapid growth in PV, the most easily scalable renewables

technology. Storage also lowers the need for hydrogen power plants that will replace gas plants. It

is important not to overestimate hydrogen needs when planning for corresponding infrastructure. 5 GW of green hydrogen plants, covering 7 percent of demand in 2045, are needed for power system security of supply.

Speeding up the reduction in fossil gas consumption with investment in buildings and industrial plants, as well as in district heating, renewables and power grid expansion, will add €40 billion per year to the EU-wide public green spending needs in 2022–2027.

Using the existing Recovery and Resilience Facility (RRF) for this purpose would make funds available in the 2022-2027 timeframe and allow – together with the unused RRF loans – to scale up investment quickly.

However, the current EU budget (2021–2027) only allows for marginal adjustments and does not offer sufficient funding for all types of investment needed to deliver the RePowerEU plan.

One plausible option for financing the additional debt service of €2.9 billion per year in 2028–2058 is to use a share of revenues from carbon pricing, including the proposed ETS for transport and buildings.

Industrial production of virgin plastics, steel, aluminium and cement alone accounts for 13 percent of yearly energy consumption and 581 Mt of annual emissions. The EU also imports very large amounts of gas, oil and coal to produce plastics and other energy intensive materials.

With ambitious policies, annual EU industrial emissions could be reduced by up to 10 percent (70 Mt) until 2030 and by 34 percent (239 Mt) until 2050 compared to 2018 levels. Plastics production alone could avoid using fossil fuels equivalent to roughly 2.7 billion cubic metres of gas and 149 million barrels of oil annually by 2030.

Required policy instruments are expanded quotas for recycled content; investment aid for rapid deployment of innovative recycling technologies; as well as labelling and best practice mandates for collection, sorting, recycling and re-use.

Examples are wider bans on single use and non-recyclable plastics, the implementation of deposit-refund schemes for plastic packages, investments into ex-post re-sorting and state of the art recycling practices.

Industrial production of virgin plastics, steel, aluminium and cement alone accounts for 13 percent of yearly energy consumption and 581 Mt of annual emissions. The EU also imports very large amounts of gas, oil and coal to produce plastics and other

energy intensive materials.

With ambitious policies, annual EU industrial emissions could be reduced by up to 10 percent (70 Mt) by 2030 and by 34 percent (239 Mt) by 2050 compared to 2018 levels. Plastics production alone could avoid using fossil fuels equivalent to roughly 2.7 billion cubic metres of gas and 149 million barrels of oil annually by 2030.

Required policy instruments are expanded quotas for recycled content;

investment aid for rapid deployment of innovative recycling technologies; as well as labelling and best practice mandates for collection, sorting, recycling and re-use.

Examples are wider bans on single use and non-recyclable plastics, the implementation of deposit-refund schemes for plastic packages, investments into ex-post re-sorting and state of the art recycling practices.

Energy efficiency in buildings and industry as well as a fast ramp up of wind and solar PV can permanently reduce fossil gas demand by 1200 terrawatt hours in the next five years, allowing to avoid 80% of today's Russian gas imports and enabling a 100% displacement when combined with alternative supplies such as LNG.

Until 2027, energy efficiency, district heating and a heat pump revolution can save 480 TWh in buildings; efficiency and electrification in low and medium temperature heat processes can provide for 223 TWh savings in industry, and a ramp up of wind & solar PV combined with more system flexibility will contribute 500 TWh in the power sector.

The RePowerEU plan needs to mobilize the reductions identified in this study. Similar to the COVID recovery efforts, the plan must be embedded in a strong political framework overseen by the European Council to ensure its swift and full implementation. Helping Ukraine build back better after the war should be part of the efforts.

The framework also needs to ensure that existing EU funds are re-purposed wherever possible and governments smartly combine price signals and protection for poor households and industry.

The CBAM is a necessary tool for the EU to prevent carbon leakage; it is not an instrument to force trading partners to adopt similar policies.

Export markets for goods with high carbon intensity will shrink, impacting the region far beyond the power sector. The CBAM will to some extent also reduce opportunities to export carbon free flexible power generation. There is a tight timeline concerning the numerous re-forms that must take place before 2030.

Such projects will be loss-making in context of the CBAM. Establishing domestic carbon pricing will assist countries in gathering revenues that should be used to fund the transition to clean power systems.

Specific support is needed for establishing the data and technical backbone of carbon pricing systems. In addition, the West-ern Balkan countries should use a larger share of available EU funds for supporting a just transition and socio-economic convergence with the EU.

Meanwhile, emerging economies with rising steel demand will require at least 170 Mt of new capacity. Meeting these needs with coal-based capacity will create long-term carbon lock-in and lead to stranded assets, endangering jobs and putting any pathway compatible with 1.5°C out of reach.

The project pipeline of green steelmaking capacity that will come online before 2030 is growing rapidly. 40 Mt of direct reduced iron (DRI) capacity is already planned and many operators have announced that they will switch to secondary steel production. Retroactive post-combustion CCS for coal-fired blast furnaces may be a dead-end road.

The best strategy from now on is to avoid reinvestments into blast furnaces by prolonging life-times of old assets by 2-5 years and after 2025, invest into DRI directly. By 2030, the global steel sector would require 390 Mt of DRI capacity and 278 Mt of additional secondary steel capacity. This is feasible – and would save the atmosphere 1.3 GtCO2 per year.

Steel is a globally traded commodity. The sector’s transformation will require international coop-eration. Meeting the asset transition targets would transition some 1.3 million existing jobs in the steel industry from coal-based to future-proof green jobs while creating 240,000 new green jobs in emerging economies.

A 2030 coal phase-out provides a CO₂ emission reduction potential of 1 billion tons beyond the 40 percent emissions reduction scenario at little additional cost to consumers (wholesale prices rise by 0.5 cent/kWh).

The required emission reduction of the power sector can only be achieved if coal is overwhelmingly replaced by solar PV and wind energy. A phase-out of the remaining 38 GW coal capacities in the six countries that do not have a 2030 phase-out date yet (Bulgaria, the Czech Republic, Germany, Poland, Romania and Slovenia) must be met with 100 GW of PV and wind.

The coal phase-out may require additional deployment of 15 GW of gas plant capacity to safeguard security of supply – while gas-fired power generation needs to fall 15 percent by 2030 in the EU. To avoid stranded assets, all new fossil gas investments should be hydrogen ready.

The EU ETS should be tightened as proposed by the European Commission. Several Member States should quickly develop or accelerate their plans for national coal phase-out, potentially complemented by a national carbon floor price. Member States should rapidly scale renewables.

2  GW of new lignite capacity is currently planned in the region. If built, these plants will generate a cumulative loss by 2040. This is because of low efficiency of lignite mining, costs to comply with air pollution regulation and limited export opportunities after establishment of the EU  Carbon Border Adjustment Mechanism (CBAM). A phase-in of carbon pricing in Energy Community countries would further increase losses.

A 2040 lignite exit increases system costs by 3–4 €/MWh in an unlikely scenario without carbon pricing. With the EU CBAM regime or any other form of domestic carbon pricing, closing lignite plants by 2040 lowers system costs.

Security of supply is not an issue if the gradual phase-out of lignite is accompanied by a rapid scaling of renewables, enhanced interconnections, regional power market integration, strengthening of existing hydro-storage and targeted investments in flexible gas plants. Expanding renewables also reduces import dependency of the power and energy sectors.

Replacing lignite generation by renewables lowers wholesale prices, hedges against carbon prices and avoids that fossil gas infrastructure will become stranded. Renewables deployment can largely be financed from market revenues, especially in case of carbon pricing. Renewables also come with many co-benefits such as improved air quality and new job opportunities. ‘Just transition’ policies would ensure that no one is left behind.

These applications include steel, ammonia and basic chemicals production in the industrial sector, as well as long-haul aviation and maritime shipping. The power sector needs long-term storage to accommodate variable renewables, and existing district heating systems may require hydrogen to meet residual heat load. Accordingly, renewable hydrogen needs to be channelled into these no-regret applications.

While renewable electricity (the main cost component of renewable hydrogen) is already on track to become cheaper, electrolyser system costs also need to be reduced. Cheaper electrolysers will come through economies of scale and learning-by-doing effects; however, predictable and stable hydrogen demand is prerequisite for electrolyser manufacturers to expand production and improve the technology.

Even at CO₂ prices of €100 to 200/tonne, the EU ETS will not sufficiently incentivise renewable hydrogen production, making additional policy support necessary for a considerable period of time. Among potential policy options, a general usage quota for renewable hydrogen would not be sufficiently targeted to induce adoption in the most important applications.

Several policy instruments should be deployed in concert to achieve this aim – namely, carbon contracts for difference in industry; a quota for aviation; auctions to support combined heat and power plants; measures to encourage markets for decarbonised materials; and hydrogen supply contracts. These instruments will also need to be complemented by regulations that ensure sustainability, appropriate infrastructure investment, system integration, and rapid renewables growth.

This guide explains how the various programmes work, how investments into the green transition are triggered and it identifies investment opportunities in four key sectors (industry, buildings, transport and energy).

Despite its historic size, EU funds alone are not sufficient to meet the overall investment needs of the newly raised 2030 climate and energy targets. The instruments under the Next Generation EU and the Multiannual Financial Framework need to be smartly combined with national funding and effectively designed to crowd in private funding in order to deliver a green recovery.

It can be used to scale up mature clean transition solutions, which in many instances can be

deployed quickly. Its specific feature of dealing with investments in conjunction with policy reforms is what will make the difference for sustained green growth. It will be crucial that the Commission applies the necessary scrutiny on the use of funds, enforcing the tracking methodology for the climate target and payment conditionalities.

This would re-establish Germany as an international leader in climate protection and make it a lead market and technology provider for climate-friendly technologies.

and would set the stage for an accelerated transformation after 2030.

After 2030, the transformation would have to accelerate with regard to renewable energy expansion, industrial decarbonisation, and the adoption of heat pumps and electric vehicles. The transformation of the agricultural sector and the use of carbon capture and storage (CCS) technologies will have to occur sooner.

In nearly all EU Member States additional costs for carbon emissions would only increase tenants’ bills without encouraging landlords to refurbish their buildings.

Since landlords pay heating bills, they have a clear incentive to reduce energy consumption and avoid carbon taxes by renovating their houses and switching to clean heating systems.

When heating bills are based on a guaranteed temperature, landlords have the incentive to renovate their buildings, while tenants who keep their apartments cooler (verified by temperature monitoring) pay less.

This would provide all Member States (not only Sweden, currently profiting from an exception clause) with an easy-to-implement policy instrument that protects tenants from high carbon prices and provides targeted incentives for landlords.

To guarantee both, the architecture must have a robust compliance mechanism. Whatever EU climate policy architecture is chosen, each ton of CO2 must be governed by the ETS or the Effort Sharing mechanism. At the same time, the target achievement must be a collective endeavor that supports lower-income Member States and poorer households.

A standalone ETS for transport and/or buildings, an enlarged EU ETS, or tightened effort sharing are all options that could work, and each has their pros and cons. The important thing is to define who is accountable for reducing emissions, and who will be responsible if targets are not met. When emissions trading serves as the central compliance mechanism, prices must be allowed to rise as high as necessary to reach the emission reduction target – which means not introducing a price cap.

This holds especially true for households and transport. Companion policies in these sectors guide investment decisions and drive innovation, while the carbon price ad-dresses the use of existing cars and heating systems. Strengthening EU-policies such as CO2 standards for vehicles, building codes, or support programs for low-carbon heat grids gives consumers the low-carbon options they need to respond to rising carbon prices and to reduce emissions in line with the 55% target.

100% of revenues from carbon pricing must flow back to consumers in one way or another – as targeted support for vulnerable households, as a fund for climate policy measures, or as lump-sum payments. Using carbon pricing revenues for other purposes such as repaying EU debt threaten to undermine support for higher CO2 prices. It is better to use tools that enable consumers to reduce their CO2 footprint, and thus their exposure to higher prices, rather than simply trying to exempt consumer

groups generally.

The first step consists of a 65% reduction in emissions by 2030. The second step is the complete transition to climate-neutral technologies, for a total emissions reduction of 95%. The third step is the offsetting of residual emissions through carbon capture and storage.

The core elements of the programme are the creation of a renewable-based energy sector, mass electrification, a smart and efficient modernization of buildings and the development of a hydrogen economy for the industrial sector. Besides achieving climate neutrality, the programme will also improve people’s quality of life by reducing noise and air pollution.

This includes the complete phase-out of coal by 2030, a 70% share of renewables in electricity generation, 14 million electric cars on the road, 6 million heat pumps, an increase in the green retrofit rate of at least 50% and the use of some 60 TWh of clean hydrogen.

Government action after the 2021 federal election will be pivotal for future climate policy. Intelligent policy instruments will be needed to modernise Germany’s economy and make it sustainable and resilient. They will also be needed to ensure that the structural changes are as fair and inclusive as possible.

Technically feasible emissions reductions compatible with the 55 per cent target (relative to 1990) for the EU-27 range from 45 per cent to 49 per cent for the non-ETS sectors and from 59 to 63 per cent for the ETS sectors (both relative to 2005). Our central scenario of -47 per cent for non-ETS sectors and -61 per cent for ETS sectors represents a reasonable balance.

Adopting additional policy measures at the Member State level, enhanced EU-wide policies and measures and a reform of the EU-ETS are the key elements in achieving a higher target. Some Member States have already set climate goals or measures that are broadly in line with higher climate ambition in the non-ETS sectors.

These include the trading of AEAs between Member States, enhanced land-use change and afforestation, greater use of ETS allowances and the inclusion of parts of the effort-sharing sectors in the EU ETS. Some of the flexibility options depend to a great extent on early action by Member States in delivering emissions reductions, which is why quick reform proposals are needed.

Member States with below-average GDP per-capita levels will need to make greater contributions than is currently the case; otherwise there will be no credible pathway to climate neutrality by 2050. These additional efforts should be supported by dedicated solidarity mechanisms both within the Effort Sharing Regulation and in the upcoming EU budgets.

It is uncertain whether the 750 billion NextGen EU recovery budget will be used for clean investment; and only a very limited part of the 1.1-trillion Multiannual Financial Framework is reserved to that end. The proposal fails to meet the stated commitment of the European Commission and Europe’s heads of state to an economic recovery in line with climate neu-trality by 2050.

Priorities are tripling the speed for creating new solar and wind energy, tripling the rate of energy efficiency retrofits of building, greening district heating networks, an EU-wide EV-charging infrastructure, a high-speed EU railway system, a clean hydrogen economy and a climate-neutral industry.

(1) Stipulating a climate share of 40% across all budget lines in both the NextGen EU budget and the multiannual financial framework; (2) establishing dedicated EU facilities to accelerate climate action in critical areas; (3) setting out a clear exclusion-list of climate-negative activi-ties that will not be eligible for EU funding.

We need (1) to ensure that spending activities are consistent with the National Energy and Climate Plans, the Territorial Just Transition Plans, the Recovery and Resilience Plans, and other planning processes; (2) to devise a role for the EU Green Taxonomy in determining na-tional spending priorities; and (3) to conduct a budget review in early 2024, when EU legisla-tors will have just finished updating the EU’s 2030 climate and energy framework.

Hard coal generation dropped by 32%, while lignite decreased by 16%. This development is driven by CO₂ price increases and deployment of renewables. Gas replaced around half of the coal, solar and wind the other half. The decline of coal will continue: Greece and Hungary both made commitments in 2019 to phase out coal, bringing the total of member states phasing out coal to 15. Only Poland, Romania, Bulgaria and Slovenia are yet to start.

This is likely to be the largest ever fall. EU Emissions Trading Scheme (EU ETS) stationary emissions, including heavy industry, fell by 7.6% in 2019, implying that industrial emissions are likely to have decreased by only 1%. Nevertheless, overall emissions covered by the EU ETS are falling much faster than the cap; showing the central role of a further strengthening of the EU ETS to accelerate climate action in Europe.

For the first time, wind and solar combined provided more electricity than coal, contributing 18% of EU electricity in 2019. This is more than a doubling of market share since 2013. The increase in wind and solar generation was strongest in western Europe, while Poland and Greece have started to engage. The rest of eastern Europe is significantly lagging behind. The economic opportunities of low-cost renewables became increasingly visible. 2019 saw record low auction prices for offshore wind (UK) and solar (Portugal) - below wholesale prices – and the largest wholesale price decreases in countries where wind and solar expanded most.

The European Green Deal has put the fight against the climate crisis at the very core of all EU policy work over the next five years: EU heads of state have endorsed Europe to become the first greenhouse gas neutral continent by 2050, and the EU commission is putting forward proposals to raise Europe’s 2030 greenhouse gas reduction target to -50% or -55% below 1990 levels. This implies power sector emissions will keep falling, even if electricity demand increases as transport, heating industry continue to electrify.

Reducing emissions from the current level of 130 million tons of CO2 to between 70 and 72 million tons in the next 11 years will require ramping up all available technologies across the board. These include insulation, heat pumps, heat networks, decentralized renewable energy and power-to-gas. Cherry-picking the various building technologies is no longer an option because of past shortcomings.

Ensuring adequate competition between various energy supply options such as renewable energy, heat pumps, synthetic fuels and decarbonized heat networks requires reducing final energy consumption by at least a third before 2050. The more efficient a building is, the more realistic any necessary expansion on the generation side will be.

Synthetic fuels are a significant component of energy supply in all 2050 climate protection scenarios. But their contribution by 2030 is only limited, and even between 2030 and 2050 they are considerably more expensive than most energy efficiency measures in the buildings sector. In addition, the bulk of generation from power-to-gas may be allocated to other markets (industrial processes, shipping, air travel and transport by truck).

To this end, a package of policy measures is needed, including changes to relevant laws, regulations and energy tax laws, as well as an overhaul of funding programs. The heating sector goals for 2030 and 2050 can only be met if the installation rate of all building-related climate protection technologies is quadrupled.

Breakthrough innovations are thus needed to enable the climate-neutral production of steel, chemicals and cement. Gradual efficiency improvements remain important, but they are no longer sufficient.

Green hydrogen will play a central role in achieving carbon neutrality in the steel and chemical industries. Particularly in the chemicals industry, the closing of material loops will be a core strategy. In the cement industry, new binders and carbon capture and storage (CCS) will be key technologies.

With the right mix of policy instruments, the German government can ensure reliable conditions for investment while also incentivising behaviour at various levels of the supply chain: upstream, midstream and downstream. By contrast, continued investment into conventional technologies risks stranded assets, as new industrial plants have lifespans well beyond 2050.

By ushering in climate-neutral industry at home, Germany could help to demonstrate the viability of a climate-neutral industry and thereby help to foster a global market for low-carbon technologies worth billions.

The reason: countries in South East Europe face higher financing costs due to perceived higher investor risks. More costly than necessary renewables investments seriously hamper power system modernisation in SEE.

“De-risking measures” available to governments will reduce renewable energy project costs to levels comparable or lower than those of fossil fuel investments. Low cost renewable energy projects are thus a real alternative for replacing old and polluting lignite power plants.

De-risking measures with the highest impact include: (1) the proposed EU budget guarantee mechanism; (2) reliable, long-term renewables remuneration regimes and long-term renewables targets; (3) well-functioning, regionally integrated balancing and intraday markets; and (4) corporate power purchase agreements.

The budget guarantee alone accounts for 40 per cent of the decline in financing costs attributable to the de-risking measures analysed in this study. Overall, de-risking measures enable the expansion of renewables in South East Europe at lower costs than coal, natural gas or nuclear, with attendant benefits for the climate and for human health.

For decades, Germany's economy was reliant on energy from lignite and hard coal; in the future, renewables will serve as a basis for economic prosperity.

In the absence of implementation, CO₂ emissions from coal-fired power plants will only decline at a slow rate. However, the Coal Compromise is not sufficient for Germany to meet its 2030 carbon emissions target. Considerable additional measures are required, especially in the industrial, building, and transport sectors.

The compromise guarantees that no worker will be left high and dry and that coal mining regions will have sufficient time and resources to adapt economically. To this end, the compromise foresees 2 billion euros in federal spending per year - which in parts can also be understood as compensation for structural policy failures since German reunification especially in Eastern Germany.

Periodic reviews in 2023, 2026, 2029, and 2032 will offer policymakers an opportunity to react to a worsening climate crisis with additional measures. Furthermore, the Commission’s compromise creates a foundation for a socially equitable acceleration of the phase-out.

By 2030, renewables will account for 55% of power generation in Europe, and 50% of power generation in SEE. Nearly 70% of renewable power in SEE will stem from wind and solar, given the excellent resource potential of these renewables in the region.

For example, wind generation can fluctuate from one hour to the next by up to 47% in Romania, whereas the comparable figure for Europe is just 6%. Moving from national to regional balancing substantially lowers national flexibility needs. Increased cross-border interconnections and regional cooperation are thus essential for integrating higher levels of wind and PV generation.

Accordingly, conventional power plants will need to flexibly mirror renewables generation: When renewables output is high, conventionals produce less, and when renewables output is low, fossil power plants increase production. Flexible operations will become an important aspect of power plant business models.

The available reserve capacity margin in SEE will remain above 35% in 2030. More interconnectors, market integration and regional cooperation will be key factors for maximising national security of supply and minimising power system costs. SEE can be an important player in European power markets by providing flexibility services to CEE in years of high hydro availability.

Half of this was structural, from new wind, solar and biomass displacing hard coal. The other half was weather-related, as increased hydro generation reversed the temporary rise in gas in 2017. Overall EU ETS emissions, we estimate, fell by 3%, from 1754 Mt in 2017 to 1700 Mt in 2018.

Hard coal generation fell by 9% in 2018, and is now 40% lower than in 2012. In 2018, Germany and Spain announced that coal phase-out plans were imminent. That would now put three quarters of Europe’s 2018 hard coal generation under national coal phase-outs. The remaining quarter is almost all in Poland.

Lignite generation fell by only 3% in 2018. Half of Europe’s lignite generation in 2018 was in Germany; the Coal Commission announcement for a 2038 phase-out includes lignite. The other half is in countries where this is not yet the case: Poland, Czech Republic, Bulgaria, Greece, Romania and Slovenia.

Renewables rose to 32.3% of EU electricity production in 2018. While this year’s rise was mainly due to wind growth picking up and hydro returning back to normal, solar will be the next big thing: solar additions increased by more than 60% to almost 10 GW in 2018 and could triple to 30 GW by 2022. Module prices fell by 29% in 2018. Solar outperformed during the 2018 summer heatwave, when coal, nuclear, wind and hydro all stumbled. Bold national plans for solar in 2030 were drafted in Italy, France and Spain in 2018. The EU’s 2030 RES target, agreed in 2018, will result in even more.

Coal and gas generation costs rose in 2018: coal price rose 15%, gas rose 30%, and the CO₂ price rose 170%. Consequently, electricity prices rose to 45–60 €/MWh in Europe. This is the level at which the latest wind and solar auctions cleared in Germany.

The aim of the fund would be to strengthen the region’s economic attractiveness and its desirability as a place to live. It should help to: preserve the region’s industrial character, strengthen innovation among its businesses, support its academic institutions, equip it with an up-to-date transport network and digital infrastructure, and foster a lively civil society that retains local residents while also attracting new ones.

In each of these areas, it should be possible to use the available funds in a flexible manner (i.e. to shift funding between areas), and funds that are not withdrawn should not expire (i.e. funding should be transferable to subsequent years).

The federal government should only play a monitoring and coordinating role, as part of a steering committee; decisions on funding priorities should be made by stakeholders from the region.

Raising the attractiveness of a region means more than just promoting its economy, academic institutions and infrastructure. Ultimately, the vibrancy of a place depends on art, culture, lived traditions and the quality of civil society. These factors require ongoing support, which can be guaranteed in the short term through the Structural Change Fund and in the long term through developing a foundation with a strong endowment.

Since Europe‘s hydro potential is largely tapped, the increase in renewables comes from wind, solar and biomass generation. They rose by 12% in 2017 to 679 Terawatt hours, putting wind, solar and biomass above coal generation for the first time. This is incredible progress, considering just five years ago, coal generation was more than twice that of wind, solar and biomass.

Germany and the UK alone contributed to 56% of the growth in renewables in the past three years. There is also a bias in favor of wind: a massive 19% increase in wind generation took place in 2017, due to good wind conditions and huge investment into wind plants. This is good news since the biomass boom is now over, but bad news in that solar was responsible for just 14% of the renewables growth in 2014 to 2017.

With Europe‘s economy being on a growth path again, power demand is rising as well. This suggests Europe‘s efficiency efforts are not sufficient and hence the EU‘s efficiency policy needs further strengthening.

Low hydro and nuclear generation coupled with increasing demand led to increasing fossil generation. So despite the large rise in wind generation, we estimate power sector CO2 emissions remained unchanged at 1019 million tonnes. However, overall stationary emissions in the EU emissions trading sectors rose slightly from 1750 to 1755 million tonnes because of stronger industrial production especially in rising steel production. Together with additional increases in non-ETS gas and oil demand, we estimate overall EU greenhouse gas emissions rose by around 1% in 2017.

Three more Member States announced coal phase-outs in 2017 - Netherlands, Italy and Portugal. They join France and the UK in committing to phase-out coal, while Eastern European countries are sticking to coal. The debate in Germany, Europe’s largest coal and lignite consumer, is ongoing and will only be decided in 2019.

Wind and solar are today cheap technologies that are on equal footing with coal and gas. However, high cost of capital oftentimes hinders renewables projects from going forward, even when there is excellent potential. Bridging that gap, a RES-CRF will bring significant cost savings to consumers and taxpayers in those countries

The risk of the financial guarantee underpinning the RES-CRF ever being called is very small. We propose a set of concrete safeguards to ensure only high quality renewable energy investments will benefit and to avoid over-commitments.

Committed public funds to implement Article 3.4 of the new EU Renewable Energy Directive would create scope for establishing the RES-CRF. This would help Europe to meet its 2030-renewable energy target and enable all Member States to benefit from low-cost renewable energy.

A key design feature of the RES-CRF is its flexibility. Being largely based on contractual arrangements, it can be tested in specific sectors or Member States before a wider roll-out. Launching a pilot project before 2020 would help strengthen confidence in the instrument. A pilot can be financed from the running EU budget.

Coal-fired power plants are in most cases less flexible compared to gas-fired generation units. But as Germany and Denmark demonstrate, aging hard coal fired power plants (and even some lignite-fired power plants) are already today providing large operational flexibility. They are adjusting their output on a 15-minute basis (intraday market) and even on a 5-minute basis (balancing market) to variation in renewable generation and demand.

Targeted retrofit measures have been implemented in practice on existing power plants, leading to higher ramp rates, lower minimum loads and shorter start-up times. Operating a plant flexibly increases operation and maintenance costs — however, these increases are small compared to the fuel savings associated with higher shares of renewable generation in the system.

In some power systems, especially when gas is competing against coal, the flexible operation of coal power plants can lead to increased CO2 emissions. In those systems, an effective climate policy (e.g. carbon pricing) remains a key precondition for achieving a net reduction in CO2 emissions.

Proper price signals give incentives for the flexible operation of thermal power plants. Thus, the introduction of short-term electricity markets and the adjustment of balancing power arrangements are important measures for remunerating flexibility.

In this scenario, the importance of natural gas remains roughly the same as today, while oil heating is almost entirely replaced by heat pumps. District heating is another key factor. By 2030, district heating will primarily draw on heat from CHP plants, but it will increasingly rely on solar thermal energy, deep geothermal energy, industrial waste heat, and large-scale heat pumps as well.

Energy efficiency is a pillar of decarbonisation because it makes climate protection affordable. Improving energy use efficiency in buildings requires a green retrofit rate of 2 per cent and a high retrofit depth. But current trends in building modernisation fall far short of these targets.

To close this gap, heat pumps must be installed early on not only in new buildings but also in existing buildings, for example as bivalent systems with fossil fuel-fired boilers for peak demand. If heat pumps can be flexibly managed and existing storage heaters replaced with efficient heating units by 2030, the 5 to 6 million heat pumps will affect only a slight rise on peak demand that thermal power plants must cover.

To reach the 2030 climate protection target, additional electricity consumption in the heating and traffic sector must be covered by CO2-free energy sources. But the new renewable energy capacities stipulated in EEG 2017 will not suffice to do so.

European coal generation fell by 94 TWh and gas generation increased by 101 TWh, resulting in 48 Mt less CO2 emitted. Half of this happened in the UK, but also Italy, Netherlands, Germany and Greece saw switching from coal to gas. However, gas generation was far from reaching a record – it is still 168 TWh below the 2010 level, showing that more coal-gas switching is possible without new infrastructure.

Solar and wind conditions were generally below average in 2016, compared to well above average in 2015. However, with new capacity installed, overall generation still saw small increases. As to prices, 2016 saw record low renewables auction results with only 49,9 Euros/MWh for wind offshore and 53,8 Euros/MWh for solar, both in Denmark.

Only two countries saw falls in electricity consumption in 2016, most had modest increases. Investment going into energy efficiency is apparently sufficient to prevent electricity consumption from rising but not enough for electricity consumption to begin structurally falling.

The reason is that ETS emissions are structurally below the cap – mocking the concept of a “cap-and-trade” system. To play a meaningful role in EU climate policy, the EU ETS needs to be fundamentally repaired.

2016 gave a glimpse of the rapid falls in emissions that are possible with decreased coal production. But a coherent European policy approach to continually increasing renewables and to a just transition in the context of a coal phase-out is needed to ensure that the CO2 reductions of 2016 are continued into the future.

They are also much more sensitive to political and regulatory risks. This is highly relevant when addressing Europe’s 2030 renewables framework consisting of a binding EU target without binding Member States targets.

Perceived ex-ante risks translate into country specific premiums on the costs for renewable energy investments that have nothing to do with technology risks or weather conditions.

It would also allow for broader sharing of the social, economic and health benefits of renewable energy investments, and would particularly benefit EU Member States with lower than average per capita GDP.

Nuclear power comes in second with 27 percent, coal (hard coal and lignite) amount to 26 percent. Among RES, wind power increased significantly by more than 50 terawatt hours to 307 terawatt hours in total. Hydropower produced much less due to less precipitation.

From 2010 to 2015, gas demand fell by more than a third, while renewables increased by 35.9 percent. Nuclear power production decreased slightly (-6.3 percent) and, following a slight decrease in 2014, coal (hard coal and lignite) returned to the 2010 level in 2015.

The average price of a tonne of CO₂ in 2015 was 7.60 euros, which leads to coal-fired power plants having lower marginal costs than gas-fired power plants. Coal therefore outcompetes gas throughout Europe, which has resulted, for example, in the high coal power exports in 2015 from Germany to its neighbours.

Additional capacity in mainly the onshore and offshore wind energy sector will increase RES production by another 50 terawatt hours. The carbon floor price in the UK, yielding a CO₂ price signal of some 30 euros per tonne, will push out coal in the UK in favour of gas. Further efficiency developments and the relatively mild winter will lower power consumption. The demand for CO₂ allowances will therefore decrease, leading to lower CO₂ ETS prices in 2016 than in 2015.

Principle 1: Convening a ‘Round Table for a National Consensus on Coal’

Principle 2: Incremental, legally binding phase-out of coal power by 2040

Principle 3: No new construction of coal-fired power plants

Principle 4: Determine a cost-efficient decommissioning plan for existing coal power plants based on remaining plant lifespans, including flexibility options in lignite mining regions

Principle 5: No additional national climate policy regulations for coal-fired power plants beyond the phase-out plan

Principle 6: No additional lignite mines and no further relocation processes of affected communities

Principle 7: The follow-up costs of lignite mining should be financed with a special levy on lignite

Principle 8: Creation of ‘Structural Change Fund’ to ensure a sound financial basis for structural change in affected regions

Principle 9: Ensuring security of supply over the entire transformation period

Principle 10: Strengthening EU Emissions Trading and the prompt retirement of CO? certificates set free by the coal phase-out

Principle 11: Ensuring the economic competitiveness of energy-intensive companies and the Germany economy as a whole during the transformation process

The reason for this paradox is not to be found in thedecision to phase out nuclear power – the decrease of nuclear generation is fully offset by an increasedgeneration from renewables. Rather, the paradox is caused by a fuel switch from gas to coal.

Since 2010, coal and CO2 prices have decreased, whilegas prices have increased. Accordingly, Germany’s coal-fired power plants (both new and old) are able to produceat lower costs than gas-fired power plants in Germany and in the neighbouring electricity markets thatare coupled with the German market. This has yielded record export levels and rising emissions in Germany.

Sharp decreases in generation fromlignite and hard coal of 62 and 80 percent, respectively, are expected in the next 15 years while theshare of gas in electricity generation will have to increase from 11 to 22 percent. This goes in line with thegovernments’ renewables and climate targets for 2030.

Such a strategy – call it a coal consensus –would bring power producers, labour unions, the government and environmental groups together in findingways to manage the transformation.