News
17/02/25
German election impacts on energy and mobility sectors
Hamburg, 17 February (Argus) — Germany heads to the polls on 23 February, with
its political parties divided over how to revive the country's struggling
economy and shape climate policy in the face of continued concern over high
energy costs. How the next government's policies are shaped could significantly
impact regional energy markets and Germany's role as a key player in the
European economy over the next four years. But most parties appear in agreement
over maintaining the outgoing government's stance on Russian gas. Opinion polls
suggest that support for the conservative CDU/CSU party has cooled in recent
months, but it is still expected to be tasked with forming the next government.
It is all but impossible for one party to win an absolute majority in the German
parliament, so parties typically have to form a coalition. Support for the
far-right AfD has grown in recent months, but the party still trails by some
distance in second place. The CDU/CSU says it will not form a coalition with the
AfD, so barring a dramatic surge in support for the latter in the final days of
campaigning, a CDU-led coalition — possibly including the Social Democrats (SPD)
and Greens — is likely to be in charge by the end of the month. The AfD's stance
on energy and climate change is largely at odds with most other parties, but the
CDU/CSU, SPD and Greens have some common ground. They all acknowledge the Paris
climate agreement and EU Green Deal and seek to adhere to emissions reduction
mandates, and they all plan to extend the scope of the EU emissions trading
system (ETS). The three parties' manifestos chime on a need to reduce energy
prices — which are widely seen as a key factor in the downturn in German
industrial output — while transitioning to cleaner forms of transport and
prioritising climate protection. But the parties diverge on how best to achieve
these goals. Many energy-intensive industries in Germany have struggled with
high gas prices since Russia embarked on its full-scale invasion of Ukraine in
2022. The three parties all say they will bring down energy prices by adjusting
taxes and subsidies, and increasing power generation. The parties aim to cut
network fees and electricity taxes as much as possible within the EU, and the
SPD and Greens plan to encourage the European Commission to compensate
energy-intensive industries for high power prices. The three all agree that
further expanding renewable energy is the best way to reduce energy prices but,
unlike the SPD and Greens, the CDU/CSU is unwilling to close coal-fired power
plants until they are replaced, and it wants to assess whether it is technically
and financially feasible to reactivate mothballed nuclear power plants. The AfD
wants to expand coal-fired and nuclear generation and halt the expansion of
solar and wind. Gas goals The CDU/CSU, SPD and Greens all support replacing
fossil gas with hydrogen in power generation and manufacturing in the near
future. How soon that can happen is up in the air. Industrial groups have cited
hydrogen's high costs and constantly changing legal framework as barriers to its
expansion, calling for the simplification of national and EU hydrogen
legislation, the continuation of subsidies for domestic production, and more
consumer incentives to substitute natural gas. But the CDU/CSU also wants to
reverse the gas boiler ban introduced by the outgoing government, which mandated
that new buildings install heating systems using at least 65pc renewable energy
from January 2024. Instead, it proposes subsidising low-emission heating
solutions — regardless of the technology on which they are based. If
implemented, this could check the decline in residential gas demand, although
gas consumption is likely to become less attractive after the heating and road
sectors are included in the EU ETS from 2027, pushing gas costs up. The CDU/CSU
has made it clear that it intends to continue adhering to the Paris and EU
climate agreements, but says this is conditional on the "competitiveness of the
German economy" and "social load limits". The AfD not only seeks to end putting
a price on CO2 emissions altogether, it also wants to undo the EU emission
reduction mandates as a whole. Crucially, none of the potential coalition
partners plans to reverse course on Russian gas — unlike the AfD, which is
calling for the lifting of all sanctions on Russia, including those on gas and
oil imports into the EU. The AfD also intends to reopen the undamaged pipe B of
the Nord Stream 2 pipeline to restart flows of Russian gas to Europe, and repair
and reopen the Nord Stream 1 and 2 pipes that were damaged in September 2022.
Vorsprung durch technik? On the question of the future of mobility in Germany,
there is significant disagreement between the parties that might find themselves
in a coalition government. While the SPD and Green party believe that e-mobility
will be most relevant and want to maintain the ban on registering internal
combustion engine (Ice) cars from 2035, the CDU and AfD advocate for "technology
openness" and want to reverse these agreements. The SPD says that it wants
Germany to remain a leader in car manufacturing, but with its focus on electric
vehicles (EVs). In order to encourage consumers to buy EVs that are "made in
Germany", it proposes tax cuts for domestically manufactured units. This might
be a lesson learned from unintended consequences of the general subsidy for EV
purchases that was phased out at the end of 2023 — this was as beneficial for
foreign EV manufacturers as domestic ones. The Green party supports the same tax
cuts, provided the car is mostly manufactured within Europe. The SPD and Green
party also believe that eFuels should primarily be used in aviation or shipping,
rather than on the road. They aim to establish a climate-neutral European
aviation sector through rules to prevent ‘carbon leakage', with the Greens even
aiming to make domestic flights unnecessary. The Conservatives and the AfD take
a completely different approach — they believe that the market should decide
which mode of mobility will prevail. Based on this belief, their main goal is to
reverse the EU policy of banning new Ice car registrations from 2035. The CDU
and AfD instead both aim to make Ice cars — probably running on eFuels — a
financially competitive alternative to EVs. They do not believe it is the
government's responsibility to influence markets in one way or another. For the
AfD, this extends to not using public funds to finance vehicle charging
infrastructure. The two parties also agree that EU fleet emission limits, or at
least associated penalties, should be abolished to avoid subjecting the German
car manufacturing industry to additional pressure. The CDU's lead in the polls —
and the performance of the AfD — reflects the priorities of Germany's voters,
which are focused most heavily on immigration and the state of the economy, with
energy and climate policies much further down the list. The CDU leads approval
ratings on expected handling of economic issues. So the party's view on how far
Germany's shift from fossil fuels to renewable energy dovetails with reviving
economic competitiveness could play a role in dictating the pace of the energy
transition in Europe's largest economy in the years ahead. By Johannes Guhlke
German power generation mix GW Change in gas demand by sector, y-o-y GWh/d
German gas demand by year Send comments and request more information at
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