30.11.2012
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Energy policy

EU may consider German EEG "state aid"

It would be a complete about-face – the European commission has told Angela Merkel's coalition that it now considers the German Renewable Energy Act (EEG) to be state aid, not because of the feed-in tariffs, but because of the massively expanded privileges for industry.

Over a decade ago, the EU Court of Justice ruled that German feed-in tariffs do not constitute "state aid." As Renewables International explained last month, the court found that the tariffs are available for all players on the market, and decisions are made by market participants, not the government. In particular, under feed-in tariffs the government does not specify that a certain amount of money will go to a certain company. The policy thus stands in stark contrast to policy support in the US, in which the Department of Energy often sets aside a large sums of money for particular firms doing business in the US.

But in 2009, the conservative Christian Democrats (CDU) and libertarian Free Democrats (FDP) – the parties that opposed the original EEG of 2000 set forth by the center-left Social Democrats (SPD) and the Greens – formed a coalition and got their first chance to amend the EEG without input from the two parties that originally drafted the law.

The result has been chaotic, much in line with the rest of the Merkel coalition's energy policy; remember, this is the coalition that extended the lives of nuclear power plants in 2010 only to shut down 40 percent of nuclear capacity within a week less than a year later.

Like the Democrats and Republicans in the US, the CDU and FDP both preach free markets, and (as the comparison of policy practices above shows) conservative politicians in the US and Germany paradoxically produce policies that pick winners and restrict competition.

Politicians like Angela Merkel preach free markets but then give handouts to specific firms. Now, these shenanigans have drawn the attention of Brüssels.
Politicians like Angela Merkel preach free markets but then give handouts to specific firms. Now, these shenanigans have drawn the attention of Brüssels. - 
World Economic Forum, Davos

Now, German economics daily Handelsblatt reports that it has received a three-page memo from Brussels to the German government. The bone of contention is not feed-in tariffs themselves, as was the case a decade ago, but rather industry exemptions. From the beginning, the EEG has always allowed for large energy-intensive industry facing international competition to be exempt from the EEG surcharge in order not to scare such industry out of the country. But Merkel's coalition has a widely expanded the practice, with the number of firms applying for such exemptions ballooning from 700 to more than 2,000 this year.

Apparently, Brussels has had enough and decided that the German government is picking and choosing some firms over others – which, in fact, it is. Unfortunately, Handelsblatt writes (in German) that investigations into whether the revised EEG of 2010 now constitutes state aid could lead to the complete abolishment of the EEG, which would then be replaced by "a quota system" similar to ineffective US-style RPSs are and British ROCs, which the UK has also found to be ineffective and done away with.

The wording is ambiguous in Handeslblatt, however. The direct quote attributed to the memo reads, "As a consequence, the already difficult corrections to the EEG would be further hampered and delayed" by official investigations into market distortion. The sentence claiming that Brussels may throw out the EEG and force Berlin to replace it with quotas is therefore probably Handelsblatt's wishful thinking cleverly worded to be read as a warning made in the memo. In other words, Handelsblatt – a journal that also preaches the free market – unsurprisingly would like to see feed-in tariffs, which allow small power producers to compete with corporations, thrown out in favor of quota systems, which keep our production firmly in the hands of a small oligarchy of large energy companies, which then usually operates in monopolies regulated by the government.

It is illogical for those who preach the free market to oppose feed-in tariffs, but they consistently do so – from German libertarians to generally all politicians in the Anglo world.

It is highly unlikely that Brussels would tell any member state to throw out its feed-in tariffs and replace them with a quota system. The debate about whether quota systems or feed-in tariffs are the better approach was settled in the EU years ago, and the latest REN21 Global Status Report (see page 118 in this PDF) estimates that a total of 92 countries and regions around the world have enacted feed-in tariffs, most of them within the past decade, whereas only 71 countries and regions have enacted some sort of quota system – and that list dwindles if we remove the 30 US states involved. In contrast, the list of places that have enacted feed-in tariffs only includes five US states. (Craig Morris)

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