A lot has happened on the international climate stage in the past week: In China, for example, the State Council has presented a “work program” that sets hard upper limits for CO2 emissions for the first time. Experts are talking about a “new era in climate policy”. However, there are still many unanswered questions – first and foremost about the exact limit value and the timing of this, as Nico Beckert reports.
Meanwhile, India has presented its budget for 2024/25. This shows that the new government is not backing away from its climate policy despite a reduced majority in parliament. Urmi Goswami has analyzed why significantly more money is being indirectly allocated to climate protection than is evident from the budget figures – and also what other plans India’s climate policy is pursuing.
There is also news from the plenary session of the IPCC: Last week in Sofia, the framework for important parts of the next Assessment Report (AR7) was adopted. Some NGOs have criticized an IPCC report on CCS methods that has already been adopted. In this issue, you can also read about the southern part of the Amazon rainforest. More and more studies are showing that the “green lung” there emits more CO2 than it can absorb.
We wish you an exciting read!
China intends to establish a hard cap on emissions to regulate greenhouse gas output. Late last week, the State Council presented a “work program” outlining stricter emissions control starting in 2030. The current method, which controls emissions relative to economic growth, will be replaced by “absolute emission control.”
Analyst Yan Qin states that the State Council is ushering in “a new era in China’s climate policy.” However, even the highest administrative body of the People’s Republic has not provided specifics on key climate metrics: How much further emissions can rise and when exactly they will peak. While China is taking its climate commitments seriously, “it is still in an ‘underpromising’ mode,” says Yao Zhe from Greenpeace East Asia. Nevertheless, the new work program has significant implications for companies and China’s provinces.
China’s new plan for controlling CO2 emissions represents a gradual evolution of its climate policy. Previously, China’s climate policy was guided by two main targets: The level of CO2 emissions relative to economic growth and the level of energy consumption relative to economic growth.
Specifically, to achieve the same economic growth as in 2020, CO2 emissions should be reduced by 18 percent and energy consumption by 13.5 percent by 2025. However, if the economy grows rapidly, absolute CO2 emissions can continue to rise, as they have in recent years.
The new work program outlines:
Yao Zhe from Greenpeace East Asia criticizes the unambitious timeline of the new “work program.” “The timeline here indicates policymakers still only aim to peak emissions by 2030, despite the clear likelihood that emissions will already peak much sooner.” Announcing a reset ambition to peak early would boost China’s climate reputation, according to the Greenpeace East Asia policy analyst.
Despite the title promising acceleration, “it does not accelerate the process compared to previous plans,” criticizes Lauri Myllyvirta, Senior Fellow at the think tank Asia Society. The plan also “lacks clarity on whether and when emission targets will extend from the energy sector’s CO2 emissions to other sectors like cement production and other greenhouse gases.”
Within China, however, the plan is seen as a sign that climate policy “is back at the top of the agenda,” Myllyvirta told Table.Briefings. But “one essential bit that is missing is an unambiguous statement that the carbon intensity target for 2026-30 will be fully aligned with China’s international commitment to reduce CO2 intensity under the Paris Agreement.” Given that China is severely behind the CO2 intensity commitment after the surge in emissions in 2021-23, requiring a fairly demanding target for the 2026-30 period to make up the shortfall, Myllyvirta says.
According to Qi Qin from the think tank Centre for Research on Energy and Clean Air (CREA), “The introduction of the work plan raises expectations that China will consider carbon emissions as a crucial factor in its economic development over the next five years.” Although some details still need to be finalized, the work program shows some developments that China’s provinces, companies and regulators must prepare for:
The work program outlines the path for China’s climate policy and could bring the issue back to Beijing’s agenda. As analysts confirmed to Table. Briefings that more details on implementation are expected in the coming months.
India’s new government is pushing forward the energy transition with its budget proposal. At the end of July, the lower house approved the budget proposal, which focuses on renewables and decentralized solar energy. Funding for green projects and green hydrogen will each be increased by about a third. Alongside more money, a new approach to dealing with the climate crisis will be adopted, and the goal of net-zero will extend to sectors beyond energy.
India’s Finance Minister Nirmala Sitharaman demonstrated in June during the presentation of the 2024/25 budget that the National Democratic Alliance (NDA) government intends to continue its policies on energy transition, climate action and resilience to the climate crisis, despite having a reduced majority in Parliament. The total budget amounts to approximately 48 trillion rupees, or about 525 billion euros. Technically, only about six billion of this is earmarked for climate and energy transition, but the indirect effects through tax breaks, subsidies, and mobilizing private capital are considered to be much higher.
In her speech to Parliament, the Finance Minister added to previously announced programs and measures, such as the solar program for rooftops. The transition to a low-carbon and climate-resilient economy should be coupled with economic growth, create jobs and promote the sustainability of the economy. This is what the government wants:
Tackling climate change and promoting sustainability are thus cross-cutting issues for the government. “These measures can lay a strong foundation for a sustainable and prosperous India, with the energy transition being the fulcrum from which public policy can be harnessed for a broader economic transformation”, Arunabha Ghosh, executive director of the New Delhi-based think tank Council on Energy, Environment and Water (CEEW), told Table.Briefings.
In recent years, there have already been discussions and initial regulations on the development of a taxonomy for climate finance and the creation of a carbon market. Both measures are crucial to mobilize capital for adaptation and climate change mitigation. “Investors and industry have been calling for a taxonomy and a transition pathway to guide financial flows and rebalance economic activity,” said Suranjali Tandon, professor at the National Institute of Public Finance and Policy. “The budget’s proposal to define climate finance is a positive step towards mobilizing capital for sustainability,” Ghosh also said.
The announcement of a regulatory framework for the transition from energy efficiency to an emissions market for hard-to-abate industries points to a market for compliance with emission limits and plans for sectoral emission reductions. For Tandon, the announcement of the taxonomy and emissions market is “a significant step forward in planning towards net zero in 2070″.
Neshwin Rodrigues, analyst for electricity policy in India at the British think tank Ember, also praises: “This year’s budget underlines the move towards a more holistic approach to energy transition that takes into account energy security, economic growth, job creation and environmental sustainability”.
At the end of June, generation capacity from renewable energy sources amounted to 195 gigawatts, while fossil fuels, including coal, accounted for 55 percent of installed capacity at 243 gigawatts. The rapid growth of renewable energies and the spread of decentralized solar energy on rooftops is expected to continue into the 2040s, albeit at a decreasing rate. 76 percent of electricity generation comes from fossil fuels. Because electricity demand is growing by around eight percent a year, dependence on coal will remain, even if power plants become cleaner and more efficient.
A clearer idea of the role of coal and nuclear energy will emerge from the energy transition strategy paper. “India now needs to find ways to reduce its dependence on fossil energy, and as battery costs are expected to continue to fall sharply in the coming years, it can plan to gradually reduce this dependence”, says Rodrigues from Ember.
The government is also focusing on the agricultural sector. It accounts for 14% of value creation and 58% of jobs. The sector is feeling the effects of climate change and must simultaneously increase crop productivity for a growing population, increase farmers’ income and improve its resilience. Agricultural research focusing on productivity and resilience will now be investigated and 109 high-yielding climate-resilient varieties will be released. Natural farming and digital public infrastructure will also be expanded, says Anjal Prakash of the Bharti Institute of Public Policy at the IPM in Hyderabad. “The mandate for self-sufficiency, promotion of shrimp production and focus on vegetable production clusters will result in adapting food production to the changing consumption of fresh produce and proteins. These are important steps towards a greener and more climate-resilient future.”
German industry is starting a power struggle over which EU countries will benefit economically from the Green Deal in the coming years and decades. The dispute is being sparked by the European Battery Regulation – after all, batteries are responsible for a large part of the future added value for the automotive sector and other important industries. A delegated act to determine the carbon footprint of batteries, which the Commission is proposing, is controversial. Parliament and member states can stop it after the upcoming publication.
In a letter to Minister Robert Habeck, which is available to Table.Briefings, five business associations warn that German industry will no longer be able to effectively decarbonize its global supply chains and activities “if the most efficient instruments for this are no longer recognized”.
“We therefore urge you to intervene at the highest level of the EU Commission at short notice in the interests of German industry and global climate protection”, the letter to Habeck reads. It was signed by members of the management of the Federation of German Industries (BDI), the German Association of the Automotive Industry (VDA), the German Chemical Industry Association (VCI), the German Engineering Federation (VDMA) and the German Electrical and Digital Manufacturers’ Association (ZVEI).
The background to this is obviously the still high proportion of coal-fired power in the German electricity mix. Other economies in the EU already have a clear head start in switching to renewable energies – or continue to rely on nuclear power. Last year, the CO2 intensity of German electricity amounted to 381 grams of CO2 per kilowatt hour. In Sweden and France, on the other hand, it was only 41 and 56 grams respectively.
The industry will feel Germany’s shortfall by 2028 at the latest, when electric vehicle batteries will have to comply with maximum values for carbon dioxide emissions generated during production under the new Battery Regulation. The delegated regulation that the Commission is working on is intended to regulate the method for measuring the CO2 footprint. In their letter to Habeck, the associations criticize the draft: “In the proposed methodology, power purchase agreements (PPAs) and renewable energy certificates (RECs) are no longer recognized as permissible.”
According to the associations, the battery legislation could become a blueprint for other industrial goods – with massive consequences: “This is the worst possible news for climate protection and also for the reputation of German companies in the eyes of the public, ratings and investors. It also reduces Germany’s attractiveness as an industrial location.”
The EU Battery Regulation came into force in August 2023 and – following a six-month transition period – has been in force in the EU member states since February. It replaces the previous Battery Directive and is intended to be a blueprint for further product regulations: The regulation establishes standards for a more sustainable design of batteries, is intended to boost the material cycle and strengthen the battery and recycling industry. Batteries are the first product in the EU to be subject to a binding carbon footprint.
According to the associations, the Commission only wants to take into account the CO2 intensity of the national electricity grid of a manufacturing country in the subsequent legal act – with the exception of renewable energy generation plants directly connected to factories, the letter continues. “The latter is not an option for most locations worldwide due to site suitability, approval procedures, reliability of constant power supply and space requirements.”
Cell production accounts for the largest share of the CO2 footprint of a battery for electric cars. The supply chains for batteries for electric cars are global, and the construction of a large number of cell factories is planned worldwide. Germany is an important market for cell production in Europe. Many cell factories are being planned or are currently being built, often in cooperation with or under the direction of e-car manufacturers. According to Battery News with data from May, there are plans to build 353 GWh of capacity in Germany by 2030.
Tesla has announced the construction of a factory with a capacity of 100 GWh at the Grünheide site. Northvolt wants to build a factory with a capacity of 60 GWh in Heide. The fear is that the legal act for calculating the carbon footprint will call into question investment decisions that have already been made and make it more difficult or impossible to locate here in the future.
However, the instruments propagated by the associations have similar problems to those they criticize – and more. Guarantees of origin (HKN) are an established instrument for proving green electricity status. However, the industry would operate according to the “left pocket, right pocket” principle. The green electricity purchased by individual companies would be lost to other electricity consumers – from a national or even European perspective, it would be a zero-sum game. “Guarantees of origin are not suitable for proving the additionality of green electricity”, says Mathilde Crêpy from the Brussels-based NGO Ecos.
The Commission has therefore already adopted a delegated act for the electrolysis of green hydrogen, which requires producers to prove that the electricity comes from additional – i.e. newly built for their production – electricity and wind farms. The industry had been up in arms against the complicated rules.
If the Commission now focuses on the national electricity mix or directly connected green electricity parks, it actually simplifies the verification process. However, this is obviously also a disciplinary measure to ensure that each EU country expands renewable energies in its own country as quickly as possible. According to the NGO T&E, taking the national electricity mix into account also has the advantage that the method is easily comparable internationally and, above all, verifiable. “When using guarantees of origin, on the other hand, there would have to be a big question mark over global enforceability”, says Alex Keynes from T&E.
From the perspective of the internal market, the associations’ second proposal is initially plausible. The companies want to conclude long-term direct purchase agreements with offshore wind farms, for example. However, such PPAs have so far mainly been the domain of large corporations – and supposedly a method of securing cheap green electricity before other energy consumers. BASF has already concluded contracts for energy projects in several EU countries.
However, the PPAs would also have to be concluded with additional plants. In the opinion of Ecos and T&E, they should follow the same strict methodology as the legal act for hydrogen – which would certainly not be in the interests of the industry. However, another hurdle for the associations’ PPA proposal is the poorly developed European electricity grid.
After all, is a German manufacturer’s battery really green if the electricity from its cheap Spanish wind farm does not even reach the German factory? The faltering grid expansion would, therefore, limit the availability of cheap green electricity for many years to come.
German manufacturers can still take comfort in the fact that the CO2 rules from the Battery Regulation will also apply to imported batteries. Electricity in China, for example, is still dirtier than in Europe, with specific emissions of 582 grams. Although China has already established a strong position, the battery market there is currently consolidating.
According to a recent analysis by Rystad, global investment in new battery production capacity is therefore likely to fall this year for the first time since 2020. However, according to forecasts by the World Economic Forum, global demand for batteries will increase 19-fold by 2030 compared to 2019. The automotive industry will account for the majority of this.
According to its own statements, the German government is currently planning to put out to tender five gigawatts (GW) of hydrogen-capable power plants and five GW of gas-fired power plants for which no deadlines have been set for the conversion to hydrogen. A further two gigawatts of power plant capacity is to be added through modernization or conversion of the existing power plant fleet and 500 megawatts (MW) of power plant capacity is available for a hydrogen sprinter power plant, which by definition can be operated immediately and completely with hydrogen. In addition, the German government also intends to offer 500 MW of long-term electricity storage capacity.
So much for the framework conditions. The Federal Ministry for Economic Affairs and Energy’s clear commitment to quickly launch the corresponding tenders for all pillars is to be welcomed. Only if this actually happens will it be possible to keep to the original schedule of commissioning the new power plants by the beginning of the next decade.
However, in addition to speed, the specific content of the tenders is also important for companies thinking about participating. The information that has become known so far about the expected framework conditions certainly gives cause for optimism: in addition to the main objective of achieving progress in decarbonization, the aspect of security of supply and, more specifically, the criterion of grid serviceability in the form of redispatch cost savings and grid stability are also to be taken into account.
The stipulation that all of the power plants – regardless of which of the pillars described above they are built under – are to be built “predominantly in the grid-related south” (which, incidentally, extends quite far into northern Germany), makes it clear that Berlin has understood that decarbonization and sustainable security of supply can only succeed hand in hand and cannot be considered independently.
An example from our own company illustrates why this is the case: At three of its sites in Saarland and North Rhine-Westphalia, the Steag Group is planning to build new power plants that can be operated first with natural gas and later with hydrogen. At these locations, there are currently plants that are fired with hard coal and are all classified as system-relevant by the Federal Network Agency (BNetzA). The fact that these existing plants, if they are not replaced or converted by new buildings, will have to continue to perform the function of “power grid fire department” with hard coal until after 2030 has only been a topic for experts so far.
As a company, we have been willing to decommission these plants for years, but the requirements of security of supply and grid stability are thwarting our plans: Without new power plant capacity at the same location, there is no realistic chance of being released from system relevance, either in regulatory or physical terms – the plants would therefore have to be kept operational until further notice. Given the age of the plants, this in turn presents us with ever greater technical challenges and the grid operators and ultimately private customers with ever greater financial challenges.
However, if steadily aging hard coal plants have to stand in for a few hundred operating hours per year for an unforeseeable period due to a lack of alternatives, then one may speak of a partial coal phase-out given the associated ban on market participation. However, this is certainly not the case in terms of the carbon footprint. Transferring the tasks of the old plants to the power plants of the next generation – including the qualified operating personnel – therefore makes sense in every respect.
The same could be said concerning the two gigawatts of power plant capacity to be retrofitted: It would make a lot of sense here to include those “young” hard coal-fired power plants within the meaning of the Coal-fired Power Generation Termination Act (KVBG) for which the aforementioned law has already promised an individual solution for decommissioning in return for compensation. And in terms of the CO2 balance, converting these plants to natural gas and, in the long term, hydrogen would represent a real quantum leap.
A lot has happened on the international climate stage in the past week: In China, for example, the State Council has presented a “work program” that sets hard upper limits for CO2 emissions for the first time. Experts are talking about a “new era in climate policy”. However, there are still many unanswered questions – first and foremost about the exact limit value and the timing of this, as Nico Beckert reports.
Meanwhile, India has presented its budget for 2024/25. This shows that the new government is not backing away from its climate policy despite a reduced majority in parliament. Urmi Goswami has analyzed why significantly more money is being indirectly allocated to climate protection than is evident from the budget figures – and also what other plans India’s climate policy is pursuing.
There is also news from the plenary session of the IPCC: Last week in Sofia, the framework for important parts of the next Assessment Report (AR7) was adopted. Some NGOs have criticized an IPCC report on CCS methods that has already been adopted. In this issue, you can also read about the southern part of the Amazon rainforest. More and more studies are showing that the “green lung” there emits more CO2 than it can absorb.
We wish you an exciting read!
China intends to establish a hard cap on emissions to regulate greenhouse gas output. Late last week, the State Council presented a “work program” outlining stricter emissions control starting in 2030. The current method, which controls emissions relative to economic growth, will be replaced by “absolute emission control.”
Analyst Yan Qin states that the State Council is ushering in “a new era in China’s climate policy.” However, even the highest administrative body of the People’s Republic has not provided specifics on key climate metrics: How much further emissions can rise and when exactly they will peak. While China is taking its climate commitments seriously, “it is still in an ‘underpromising’ mode,” says Yao Zhe from Greenpeace East Asia. Nevertheless, the new work program has significant implications for companies and China’s provinces.
China’s new plan for controlling CO2 emissions represents a gradual evolution of its climate policy. Previously, China’s climate policy was guided by two main targets: The level of CO2 emissions relative to economic growth and the level of energy consumption relative to economic growth.
Specifically, to achieve the same economic growth as in 2020, CO2 emissions should be reduced by 18 percent and energy consumption by 13.5 percent by 2025. However, if the economy grows rapidly, absolute CO2 emissions can continue to rise, as they have in recent years.
The new work program outlines:
Yao Zhe from Greenpeace East Asia criticizes the unambitious timeline of the new “work program.” “The timeline here indicates policymakers still only aim to peak emissions by 2030, despite the clear likelihood that emissions will already peak much sooner.” Announcing a reset ambition to peak early would boost China’s climate reputation, according to the Greenpeace East Asia policy analyst.
Despite the title promising acceleration, “it does not accelerate the process compared to previous plans,” criticizes Lauri Myllyvirta, Senior Fellow at the think tank Asia Society. The plan also “lacks clarity on whether and when emission targets will extend from the energy sector’s CO2 emissions to other sectors like cement production and other greenhouse gases.”
Within China, however, the plan is seen as a sign that climate policy “is back at the top of the agenda,” Myllyvirta told Table.Briefings. But “one essential bit that is missing is an unambiguous statement that the carbon intensity target for 2026-30 will be fully aligned with China’s international commitment to reduce CO2 intensity under the Paris Agreement.” Given that China is severely behind the CO2 intensity commitment after the surge in emissions in 2021-23, requiring a fairly demanding target for the 2026-30 period to make up the shortfall, Myllyvirta says.
According to Qi Qin from the think tank Centre for Research on Energy and Clean Air (CREA), “The introduction of the work plan raises expectations that China will consider carbon emissions as a crucial factor in its economic development over the next five years.” Although some details still need to be finalized, the work program shows some developments that China’s provinces, companies and regulators must prepare for:
The work program outlines the path for China’s climate policy and could bring the issue back to Beijing’s agenda. As analysts confirmed to Table. Briefings that more details on implementation are expected in the coming months.
India’s new government is pushing forward the energy transition with its budget proposal. At the end of July, the lower house approved the budget proposal, which focuses on renewables and decentralized solar energy. Funding for green projects and green hydrogen will each be increased by about a third. Alongside more money, a new approach to dealing with the climate crisis will be adopted, and the goal of net-zero will extend to sectors beyond energy.
India’s Finance Minister Nirmala Sitharaman demonstrated in June during the presentation of the 2024/25 budget that the National Democratic Alliance (NDA) government intends to continue its policies on energy transition, climate action and resilience to the climate crisis, despite having a reduced majority in Parliament. The total budget amounts to approximately 48 trillion rupees, or about 525 billion euros. Technically, only about six billion of this is earmarked for climate and energy transition, but the indirect effects through tax breaks, subsidies, and mobilizing private capital are considered to be much higher.
In her speech to Parliament, the Finance Minister added to previously announced programs and measures, such as the solar program for rooftops. The transition to a low-carbon and climate-resilient economy should be coupled with economic growth, create jobs and promote the sustainability of the economy. This is what the government wants:
Tackling climate change and promoting sustainability are thus cross-cutting issues for the government. “These measures can lay a strong foundation for a sustainable and prosperous India, with the energy transition being the fulcrum from which public policy can be harnessed for a broader economic transformation”, Arunabha Ghosh, executive director of the New Delhi-based think tank Council on Energy, Environment and Water (CEEW), told Table.Briefings.
In recent years, there have already been discussions and initial regulations on the development of a taxonomy for climate finance and the creation of a carbon market. Both measures are crucial to mobilize capital for adaptation and climate change mitigation. “Investors and industry have been calling for a taxonomy and a transition pathway to guide financial flows and rebalance economic activity,” said Suranjali Tandon, professor at the National Institute of Public Finance and Policy. “The budget’s proposal to define climate finance is a positive step towards mobilizing capital for sustainability,” Ghosh also said.
The announcement of a regulatory framework for the transition from energy efficiency to an emissions market for hard-to-abate industries points to a market for compliance with emission limits and plans for sectoral emission reductions. For Tandon, the announcement of the taxonomy and emissions market is “a significant step forward in planning towards net zero in 2070″.
Neshwin Rodrigues, analyst for electricity policy in India at the British think tank Ember, also praises: “This year’s budget underlines the move towards a more holistic approach to energy transition that takes into account energy security, economic growth, job creation and environmental sustainability”.
At the end of June, generation capacity from renewable energy sources amounted to 195 gigawatts, while fossil fuels, including coal, accounted for 55 percent of installed capacity at 243 gigawatts. The rapid growth of renewable energies and the spread of decentralized solar energy on rooftops is expected to continue into the 2040s, albeit at a decreasing rate. 76 percent of electricity generation comes from fossil fuels. Because electricity demand is growing by around eight percent a year, dependence on coal will remain, even if power plants become cleaner and more efficient.
A clearer idea of the role of coal and nuclear energy will emerge from the energy transition strategy paper. “India now needs to find ways to reduce its dependence on fossil energy, and as battery costs are expected to continue to fall sharply in the coming years, it can plan to gradually reduce this dependence”, says Rodrigues from Ember.
The government is also focusing on the agricultural sector. It accounts for 14% of value creation and 58% of jobs. The sector is feeling the effects of climate change and must simultaneously increase crop productivity for a growing population, increase farmers’ income and improve its resilience. Agricultural research focusing on productivity and resilience will now be investigated and 109 high-yielding climate-resilient varieties will be released. Natural farming and digital public infrastructure will also be expanded, says Anjal Prakash of the Bharti Institute of Public Policy at the IPM in Hyderabad. “The mandate for self-sufficiency, promotion of shrimp production and focus on vegetable production clusters will result in adapting food production to the changing consumption of fresh produce and proteins. These are important steps towards a greener and more climate-resilient future.”
German industry is starting a power struggle over which EU countries will benefit economically from the Green Deal in the coming years and decades. The dispute is being sparked by the European Battery Regulation – after all, batteries are responsible for a large part of the future added value for the automotive sector and other important industries. A delegated act to determine the carbon footprint of batteries, which the Commission is proposing, is controversial. Parliament and member states can stop it after the upcoming publication.
In a letter to Minister Robert Habeck, which is available to Table.Briefings, five business associations warn that German industry will no longer be able to effectively decarbonize its global supply chains and activities “if the most efficient instruments for this are no longer recognized”.
“We therefore urge you to intervene at the highest level of the EU Commission at short notice in the interests of German industry and global climate protection”, the letter to Habeck reads. It was signed by members of the management of the Federation of German Industries (BDI), the German Association of the Automotive Industry (VDA), the German Chemical Industry Association (VCI), the German Engineering Federation (VDMA) and the German Electrical and Digital Manufacturers’ Association (ZVEI).
The background to this is obviously the still high proportion of coal-fired power in the German electricity mix. Other economies in the EU already have a clear head start in switching to renewable energies – or continue to rely on nuclear power. Last year, the CO2 intensity of German electricity amounted to 381 grams of CO2 per kilowatt hour. In Sweden and France, on the other hand, it was only 41 and 56 grams respectively.
The industry will feel Germany’s shortfall by 2028 at the latest, when electric vehicle batteries will have to comply with maximum values for carbon dioxide emissions generated during production under the new Battery Regulation. The delegated regulation that the Commission is working on is intended to regulate the method for measuring the CO2 footprint. In their letter to Habeck, the associations criticize the draft: “In the proposed methodology, power purchase agreements (PPAs) and renewable energy certificates (RECs) are no longer recognized as permissible.”
According to the associations, the battery legislation could become a blueprint for other industrial goods – with massive consequences: “This is the worst possible news for climate protection and also for the reputation of German companies in the eyes of the public, ratings and investors. It also reduces Germany’s attractiveness as an industrial location.”
The EU Battery Regulation came into force in August 2023 and – following a six-month transition period – has been in force in the EU member states since February. It replaces the previous Battery Directive and is intended to be a blueprint for further product regulations: The regulation establishes standards for a more sustainable design of batteries, is intended to boost the material cycle and strengthen the battery and recycling industry. Batteries are the first product in the EU to be subject to a binding carbon footprint.
According to the associations, the Commission only wants to take into account the CO2 intensity of the national electricity grid of a manufacturing country in the subsequent legal act – with the exception of renewable energy generation plants directly connected to factories, the letter continues. “The latter is not an option for most locations worldwide due to site suitability, approval procedures, reliability of constant power supply and space requirements.”
Cell production accounts for the largest share of the CO2 footprint of a battery for electric cars. The supply chains for batteries for electric cars are global, and the construction of a large number of cell factories is planned worldwide. Germany is an important market for cell production in Europe. Many cell factories are being planned or are currently being built, often in cooperation with or under the direction of e-car manufacturers. According to Battery News with data from May, there are plans to build 353 GWh of capacity in Germany by 2030.
Tesla has announced the construction of a factory with a capacity of 100 GWh at the Grünheide site. Northvolt wants to build a factory with a capacity of 60 GWh in Heide. The fear is that the legal act for calculating the carbon footprint will call into question investment decisions that have already been made and make it more difficult or impossible to locate here in the future.
However, the instruments propagated by the associations have similar problems to those they criticize – and more. Guarantees of origin (HKN) are an established instrument for proving green electricity status. However, the industry would operate according to the “left pocket, right pocket” principle. The green electricity purchased by individual companies would be lost to other electricity consumers – from a national or even European perspective, it would be a zero-sum game. “Guarantees of origin are not suitable for proving the additionality of green electricity”, says Mathilde Crêpy from the Brussels-based NGO Ecos.
The Commission has therefore already adopted a delegated act for the electrolysis of green hydrogen, which requires producers to prove that the electricity comes from additional – i.e. newly built for their production – electricity and wind farms. The industry had been up in arms against the complicated rules.
If the Commission now focuses on the national electricity mix or directly connected green electricity parks, it actually simplifies the verification process. However, this is obviously also a disciplinary measure to ensure that each EU country expands renewable energies in its own country as quickly as possible. According to the NGO T&E, taking the national electricity mix into account also has the advantage that the method is easily comparable internationally and, above all, verifiable. “When using guarantees of origin, on the other hand, there would have to be a big question mark over global enforceability”, says Alex Keynes from T&E.
From the perspective of the internal market, the associations’ second proposal is initially plausible. The companies want to conclude long-term direct purchase agreements with offshore wind farms, for example. However, such PPAs have so far mainly been the domain of large corporations – and supposedly a method of securing cheap green electricity before other energy consumers. BASF has already concluded contracts for energy projects in several EU countries.
However, the PPAs would also have to be concluded with additional plants. In the opinion of Ecos and T&E, they should follow the same strict methodology as the legal act for hydrogen – which would certainly not be in the interests of the industry. However, another hurdle for the associations’ PPA proposal is the poorly developed European electricity grid.
After all, is a German manufacturer’s battery really green if the electricity from its cheap Spanish wind farm does not even reach the German factory? The faltering grid expansion would, therefore, limit the availability of cheap green electricity for many years to come.
German manufacturers can still take comfort in the fact that the CO2 rules from the Battery Regulation will also apply to imported batteries. Electricity in China, for example, is still dirtier than in Europe, with specific emissions of 582 grams. Although China has already established a strong position, the battery market there is currently consolidating.
According to a recent analysis by Rystad, global investment in new battery production capacity is therefore likely to fall this year for the first time since 2020. However, according to forecasts by the World Economic Forum, global demand for batteries will increase 19-fold by 2030 compared to 2019. The automotive industry will account for the majority of this.
According to its own statements, the German government is currently planning to put out to tender five gigawatts (GW) of hydrogen-capable power plants and five GW of gas-fired power plants for which no deadlines have been set for the conversion to hydrogen. A further two gigawatts of power plant capacity is to be added through modernization or conversion of the existing power plant fleet and 500 megawatts (MW) of power plant capacity is available for a hydrogen sprinter power plant, which by definition can be operated immediately and completely with hydrogen. In addition, the German government also intends to offer 500 MW of long-term electricity storage capacity.
So much for the framework conditions. The Federal Ministry for Economic Affairs and Energy’s clear commitment to quickly launch the corresponding tenders for all pillars is to be welcomed. Only if this actually happens will it be possible to keep to the original schedule of commissioning the new power plants by the beginning of the next decade.
However, in addition to speed, the specific content of the tenders is also important for companies thinking about participating. The information that has become known so far about the expected framework conditions certainly gives cause for optimism: in addition to the main objective of achieving progress in decarbonization, the aspect of security of supply and, more specifically, the criterion of grid serviceability in the form of redispatch cost savings and grid stability are also to be taken into account.
The stipulation that all of the power plants – regardless of which of the pillars described above they are built under – are to be built “predominantly in the grid-related south” (which, incidentally, extends quite far into northern Germany), makes it clear that Berlin has understood that decarbonization and sustainable security of supply can only succeed hand in hand and cannot be considered independently.
An example from our own company illustrates why this is the case: At three of its sites in Saarland and North Rhine-Westphalia, the Steag Group is planning to build new power plants that can be operated first with natural gas and later with hydrogen. At these locations, there are currently plants that are fired with hard coal and are all classified as system-relevant by the Federal Network Agency (BNetzA). The fact that these existing plants, if they are not replaced or converted by new buildings, will have to continue to perform the function of “power grid fire department” with hard coal until after 2030 has only been a topic for experts so far.
As a company, we have been willing to decommission these plants for years, but the requirements of security of supply and grid stability are thwarting our plans: Without new power plant capacity at the same location, there is no realistic chance of being released from system relevance, either in regulatory or physical terms – the plants would therefore have to be kept operational until further notice. Given the age of the plants, this in turn presents us with ever greater technical challenges and the grid operators and ultimately private customers with ever greater financial challenges.
However, if steadily aging hard coal plants have to stand in for a few hundred operating hours per year for an unforeseeable period due to a lack of alternatives, then one may speak of a partial coal phase-out given the associated ban on market participation. However, this is certainly not the case in terms of the carbon footprint. Transferring the tasks of the old plants to the power plants of the next generation – including the qualified operating personnel – therefore makes sense in every respect.
The same could be said concerning the two gigawatts of power plant capacity to be retrofitted: It would make a lot of sense here to include those “young” hard coal-fired power plants within the meaning of the Coal-fired Power Generation Termination Act (KVBG) for which the aforementioned law has already promised an individual solution for decommissioning in return for compensation. And in terms of the CO2 balance, converting these plants to natural gas and, in the long term, hydrogen would represent a real quantum leap.
