Germany to Stop Subsidizing Coal:

Germany has decided to phase out subsidies for the domestic coal industry over the next decade.

For decades, German lawmakers have propped up the industry, unwilling to risk massive layoffs and reluctant to eliminate a reliable energy source as gas and oil supplies become scarcer.

But after spending more than $200 billion in subsidies since the 1960s, the federal government this year decided that the practice had become unaffordable. The 2018 sunset for the hard-coal industry was set.

Economists and free-market lawmakers have long decried the subsidies as handouts to the politically influential coal industry and powerful trade unions. This year, for instance, Deutsche Steinkohle AG, the owner of the remaining eight mines, will receive more in government subsidies ($3.3 billion) than it will from selling coal ($2.9 billion).

With just 32,000 miners left, that's the equivalent of more than $100,000 in annual subsidies per worker.

As bad as U.S. coal subsidies are (and I'd like to see them phased out too), Germany's sound worse. At least U.S. coal companies are profitable.

They pay their coal industry billions and attack the US over global warming?
7.31.2007 12:05pm
Bretzky (mail):
According to Wikipedia, Germany's energy consumption in 2002 was spread amongst the following sources:

1) oil - 40%
2) coal - 23%
3) natural gas - 22%
4) nuclear - 11%
5) hydro - 2%
6) other renewables - 2%.

One would imagine that without the subsidies, coal will become more expensive in Germany and will be used less in energy production. Also, Germany has plans to phase out its use of nuclear energy by 2020, which is fully 11% of their energy consumption (if they are not importing any nuclear-produced energy) that they must replace.

Either these coal subsidies will have to be transferred to renewable energy subsidies or Germany is going to become reliant on foreign oil for perhaps as much as 60% of their energy needs. To me, the switch to renewables subsidies seems the far more likely of the two options, which means that this probably is not a bout of free market religion that Germany has got, but just a switch to a new protected class.

BTW, a quick comparison with the US is as follows (2004 was the most recent year's data I could locate; it comes from the Department of Energy):

1) oil - 40.0%
2) natural gas - 23.0%
3) coal - 23.0%
4) nuclear - 8.0%
5) hydro - 2.7%
6) other renewables - 3.3%
7.31.2007 2:21pm
Paul B:
A couple of points-

First for Prof. Adler, just what subsidies for coal production exist in the U.S.? The Dept of Energy does spend a fair amount of research money on "clean coal technologies" just as it does for many other forms of potential energy, but to the best of my knowledge, there is no subsidy for coal production.

Second, ending coal subsidies in Germany need not mean that the cost of coal for electric plants or steel production will necessarily increase. Instead, coal curently purchased from protected domestic sources will instead be supplied by low cost imports from places like South Africa, Colombia, or the U.S.

From an economic perspective, the subsidies given to save each coal mining job don't make much sense. However anyone familiar with coal mining towns knows that these are tight knit communities that are destroyed when the mine that brought the community into existence closes down. Countries like the UK, France, and Japan went through similar painful processes of gradually winding down their historic coal industries that were no longer competitive in an era of globalization.

Perhaps the white collar, libertarian leaning participants at a site like this should put the declining subsidies for coal miners lower on their priority list of governmental outrages.
7.31.2007 3:13pm
Huck (mail):
(From Germany)

First. The German coal mining corporation (there is only one left) is profitable, too. It would bear heavy losses without the state money, but I suspect that the profits of US coal corps are similar dependent.

Second. There is an abundance of cheap coal on the world market. Germany can easily import coal for half the price that was paid to its own coal corp. No need to switch energy sources.

In fact it was all about the coal miners trade union (which is the oldest trade union in the world, I believe, datig from the 18th century) and its very strong ties to the political party SPD.
7.31.2007 3:20pm
markm (mail):
From Bretzky's post, 6% of our power comes from renewable sources, vs. 4% of Germany's. So what's Al Gore complaining about? We're 50% greener!

Seriously, both countries use way too much fossil fuel and way too little nuclear power, and the USA is worse on both counts than Germany - but the Goreans are terrified of nuclear. We're ahead in water, wind, and solar power only because we've got a lower population density, so there's more available water power per capita and more room for wind and solar installations. Parts of the US also have a far better climate for solar than any part of Germany, and I doubt anywhere in Europe can match OK, NM, and west TX for windiness.

(Speaking of windiness, if only we could harness Congress for wind power...)
7.31.2007 4:21pm
Truth Seeker:
Is it true germany is phasing out all nuclear? I thought nuclear was the world's best hope for lowering CO2. Looks like the greens in Germany just want to shut everything down!
7.31.2007 4:31pm
Huck (mail):
Is it true germany is phasing out all nuclear? I thought nuclear was the world's best hope for lowering CO2. Looks like the greens in Germany just want to shut everything down!

The plan is very slow, real phasing out would be in the 2020s.

There are at least 4 German national elections until then, and about half the populations is against phasing out. One election would suffice to stop the plan.

In effect, it was all about pleasing a part of the electorate.
7.31.2007 5:27pm
Dick King:
It seems likely to me that if the Germans go through with de-nuclearization they will import a lot of electricity from highly nuclearized neighboring France.

7.31.2007 5:38pm
And they will import a lot of natural gas from their good buddies the Russians, who have demonstrated themselves in recent years to be extremely reliable suppliers.
8.1.2007 12:44am
occidental tourist (mail):
Must agree with Paul B.

I am aware of no production subsidies for coal that remotely resemble the German circumstance. It is exceedingly loose talk to frame the 'clean coal' boondoogle as a subsidy to the industry since it does nothing to lower the effective costs of coal mining.

I think it predominately has proven to be rentseeking by the particular academic and industrial confabs who got the contracts to develop the demonstrations.

Because the anti-energy crowd is always talking about the massive subsidies for fossil fuel production, I think it unproductive to lend credence to that kind of talk even offhandedly for the sake of criticizing actual subsidies in Germany.

The larger question of fossil fuel 'subsidies' in general is an equally blind avenue -- the only subsidies, as such, are for renewables production (tiny caveat is the small breaks given to minor producing oil wells to keep them in production. Sometimes the reduction in royalty for deeper offshore wells, presciently adopted during the Clinton administration, is portrayed as a subsidy but one hardly thinks that a modest reduction in separation royalty in line with higher exploration expense in deeper water represents a subsidy. Remind me how much rent is paid by those proposing to locate wind towers on federal property. When they start paying serious rent to the federal government and then seek a modest reduction in the rent because it is more expensive to locate wind towers in deeper water then we would have an analogous situation. As it stands now renewables pay no rent (unless located on private land) and get almost 2 cents per kilowatt hour direct subsidy from the feds and an analogous benefit slightly more difficult to quantify from states that adopt a mandate for renewables energy purchase. Thus when these measures were adopted and the price of electrical energy was less than a nickel a kilowatt hour, they were receiving a subsidy on par with Germany's coal mines.)

A newspaper editor who is fond of the catch phrase 'subsidies for oil companies' responds to this argument, "what about all the pollution". In other words, he uses the phrase regularly and has not a god damn clue of any monetary production subsidies, but feels that there are externalities to fossil fuel use that represent a social subsidy to the industry.

If he would say so honestly, I can't disagree with the basic premise although he seems to have ignored the various government pograms for dealing with industrial externalities - in the context of these fuels, the Clean Air Act comes to mind but a host of other environmental statutes that have been with us since the 1970s also have direct and indirect effects on the economies of burning fossil fuel.

To suggest then that there is inherent subsidy under the current command and control regime is generally silly. We may, and often do, disagree over the indecies that represent a reasonable background air quality (see EPA's latest proposal to tighten ozone standards to levels probably below natural background in some areas -- or further below natural background -- a redux of the fight we had only 10 years ago that culminated in American Trucking) but it is difficult to suggest that there is some kind of non-monetizied subsidy to the fossil fuel industry on par with obvious cases such as London's killer fogs.

Further, Americans have generally internalized these subsidies through their continued informed affection for fossil fuels. Essentially fossil fuels are so widely used by virtually all Americans directly or indirectly that it is difficult, even if characterizing emissions as a non-monetized subsidy, to suggest that it flows to the fossil fuel companies.

Finally, Paul's point is amply well taken that production subsidies on the scale employed in Germany as so dislocating that it is hard to say that coal would become significantly more expensive assuming that trade barriers weren't erected as some alternative protection of the domestic industry.

8.1.2007 9:29am
Wo soll ich denn meine Einkunft bekommen? Muss ich endlich a r b e i t e n?
8.1.2007 4:39pm