III A New Start inGerman and European Climate Policy

• 1 The Rationale for a Strong National Climate Policy
• 2 The Status of German Climate Policy
• 3 The Required Course Corrections
  • 3.1 Energy Law Reform
  • 3.2 Ecological Tax Reform
  • 3.3 Solar Initiative
  • 3.4 Ecological Transport Turnaround
  • 3.5 Federal Law for the Reduction of CO2 Emissions
• 4 European Climate Alliance

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III A New Start in
German and European Climate Policy

1 The Rationale for a Strong National Climate Policy

It is imperative that Germany enact a strong national climate policy, regardless of the outcome of the third Conference of the Parties. Of course, Germany must continue to work towards international agreements, especially with regard to the reduction of CO₂ emissions. As stated earlier, global climate change can only be averted by collective reduction efforts on the part of all industrialized countries, and by the implementation of sustainable development within developing countries, especially the newly industrializing countries.

It is equally true however, that the economic and ecological benefits that will accrue from a strong climate protection policy will also provide regional benefits for those countries who seize the potential of climate policy in several ways. These include: the potential for economic modernization; technological innovation; investment and job creation; as well as the potential to improve international economic competitiveness.

There is no question regarding the need for improvement in terms of economic modernization and technological innovation in Germany. Several analyses provide clear insights into the cause of the current problems. For example, the German Minister for Research Juergen Ruettgers, made the following statement on 19 June 1997 at the annual meeting of the ifo-Institut fuer Wirtschaftsforschung in Munich: „The economic strengths of our country lie in the traditional industries with high and continually growing labour productivity. The growth of these industries no longer automatically leads to the creation of more jobs in Germany. This is why Germany needs innovation. Innovation is the motor for growth and employment." (Ruettgers 1997, p. 8)

In the same speech, Minister Ruettgers called for a „Programme for Work through Innovation". He stated that „we will not be able to help the unemployed either by means of the „fair" distribution of „existing" work or with the idea that we can compete with the wage level in Poland or the Czech Republic, let alone India or Taiwan. These are one-dimensional answers to complex problems." (Ruettgers 1997, p. 6)

The conclusion drawn by Minister Ruettgers bears repeating here: „in an age of globalization and knowledge, we do not need downward cost competition; what we need is an upward innovation push." (Ruettgers 1997, p. 9)

Minister Ruettgers did not indicate exactly what form this innovation push should take. Instead, he announced the organization of a seminar, which would evaluate the state of progress of innovation research in Germany, and define new requirements.

The President of the German National Committee for the World Energy Council, Gerhard Ott, would be an excellent expert participant for this proposed seminar. In a paper entitled „Energie – kein Thema?" (Energy – No Issue?), he recently expressed his concern about the security of world energy supply, in view of the West’s high dependence on energy imports. He stated that „in the long term, the fact that Western Europe will be increasingly dependent on energy imports, up to 75% in 2020, and increasingly so from politically unstable regions, especially for oil and natural gas, gives us cause for concern." (Ott, G. 1997, p. 128)

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Ott complains that the „undeniably large potential" of energy efficiency has not been fully realized. He concludes that „without a certain amount of government control, we will not achieve the desired success … especially in light of increasing globalization, liberalization and de-regulation. For all these factors require short-term responses, and are therefore supportive neither of energy-saving measures, which only pay for themselves over longer periods, nor for the development of so-called renewable energy sources." (Ott, G. 1997, p. 132)

The announcement of the German CO₂ reduction target of 25% from 1987 levels by the year 2005, re-affirmed the critical role that Germany had played in the early 1990’s, in the current international and European policy-making processes. It was also met with widespread approval in Germany itself. This target was confirmed unanimously in the Bundestag and by the „laender" governments in the Bundesrat. As well, the Federal Ministry for the Environment convened a hearing in May 1991 for the parties concerned. There, broad approval was given by the over 250 representatives of various associations, institutions, private individuals, as well as by industry.

The reason for this broad consensus, was the widely-held conviction that an active policy of climate protection would catalyze the much-needed economic modernization, and stimulate greater job-creation.

At the same time, there was a great awareness of the synergistic effects of reducing both regional and local environmental pollution. For example, most climate protection measures themselves contribute towards the reduction of conventional air pollutants, such as nitrogen oxide, sulfur dioxide, monoxide, highly volatile organic hydrocarbons from combustion processes in the industrial sector, in households and especially from traffic. Strong climate policy can also support the goals of waste management, especially waste reduction and processing. It also adds new dimensions to the protection of nature, land resources, soil, and water, since the storage capacity for CO₂ is highly dependent on sustainable land use in general.

Gerhard Ott states that many countries are facing far more urgent problems than global climate change. However, he describes a misunderstanding which must be clarified. He writes, „… anyone who today or in the near future, is in danger of suffocating in the smog and traffic chaos of megacities such as Dakar, Bombay or Lima, will not regard possible climate changes in the next century as a real threat. A country like Taiwan, according to World Bank estimates, will need a total of 400 billion US dollars to clean up ecologically. As such, it will have to use all of its economic power to reduce SO₂ emissions before it can start to even think about the effects of possible global climate change." (Ott, G. 1997, p. 130)

What Ott describes here is a reactive and so-called „end-of-pipe" approach, which for many years dominated German environmental policy. It is an approach that has led to higher production costs. By contrast, climate protection policy provides the opportunity to replace the costly reactive approach with a cost-efficient preventive approach.

The reduction of CO₂ emissions requires a wide range of policies and measures. These include: increasing energy and material efficiency in production processes; replacing fossil fuels with renewable energy sources; structural changes in the sectors of transport, commercial and housing construction, not to mention consumption patterns. The imperative is to ensure that environmental protection is integrated within the processes of production, technological innovation and economic modernization.

This new strategy will bring about lower costs overall. In many cases, the undisputed transaction costs actually pay for themselves in the short term. In other cases, these costs will pay for themselves in the medium term, as a result of lower energy and material costs. In macro-economic terms, they will stimulate innovation and investment, job-creation, as well as, prevent the flight of capital. This

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new approach will help national economies to lessen their dependence on oil imports, and provide time for the national fossil fuel producers and suppliers (who may be the „losers" in such a strategy) to re-orient and diversify their commercial activities.

Climate protection is a key strategy for increasing economic efficiency and for stimulating the development of new products and technologies. Those who perceive climate protection in this light, are less likely to perceive as threats potential CO₂ increases expected for densely populated countries like China or India. They are also unlikely to accept the slow-moving international negotiations as an argument against developing strong climate policy in Germany. Nor will they be deterred by the unresolved scientific questions in their efforts to promote the necessary structural change.

At the first Conference of the Parties to the Climate Convention in Berlin in 1995, Chancellor Kohl not only confirmed the German reduction target. He also strengthened it by moving the baseline year from 1987 to 1990. However, the lack of follow-up actions has severely undermined the credibility of German climate policy in the international negotiations. The consequence is that even the partial successes of German climate protection and reduction policy are dismissed as so-called „wall-fall" profits, in the eyes of the international community.

Even worse than Germany’s diminished reputation in international climate diplomacy, is the message conveyed, namely, that climate protection is not feasible in economically difficult times, even by a country with considerable technological and financial resources. The result is that two potential opportunities have been missed at the same time. The first opportunity is the potential for Germany to convince those countries, with which it must compete economically, of the need for strong international climate protection agreements. The second lost opportunity pertains to the afore-mentioned economic, social and ecological benefits that accrue from strong climate policy.

2 The Status of German Climate Policy

At the end of 1996, German CO₂ emissions were 10.5% lower than 1990 levels. Compared to 1995, this resulted in an actual increase of 1.5%. The first new increase in CO₂ emissions since 1990 is primarily weather-related. Nevertheless, it demonstrates how tenuous the CO₂ savings actually are.

It was the restructuring process within the former German Democratic Republic that enabled these CO₂ reductions to be made in the first place. Energy consumption decreased by 35% and CO₂ emissions decreased by 44% in the years between 1990 and 1995. These reductions resulted from the dismantling of several energy-intensive sectors, a decrease in population by 4%, a shift of some production to the former West Germany, but also from increased energy efficiency in public utilities and private households. Of particular importance was the change in the fuel mix. Between 1990 and 1995, the use of CO₂-rich lignite coal dropped by almost 65%. Overall, the greatest reductions were achieved in the generation of electricity, industry and private households. By contrast, CO₂ emissions resulting from traffic increased by 32% over the same period.

The CO₂ reductions were made possible as a result of public and private investment and modernization measures, some of which had a positive effect on the employment situation in Eastern Germany. This included for example: the almost complete replacement of old power stations with more efficient systems on the part of public utilities; municipal investment in co-generation; the replacement of coal heating by gas heating in private households; and energy retrofitting in older buildings. These measures were also accompanied by the introduction of West German regulations for: heat insulation; heating systems; and consumption-dependent heating bills. In addition, energy prices were raised to the higher levels of those of West Germany.

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However, in absolute terms, the West German CO₂ balance for the same period shows an actual increase of 2%. Since per capita CO₂ emissions did in fact drop from 11.2 tonnes per year in 1990, to 10.9 tonnes in 1995, one can assume that there was indeed some effect from the measures taken since 1990. In particular, reference is made to such measures as the Stromeinspeisegesetz (the law which governs the feeding of electricity into the power grid), as well as the strengthening of the Kleinfeuerungs- und der Waermeschutzverordnung (the ordinance regarding small heating systems and heat insulation), as well as the initiatives in the municipal and private sector.

However, there is no doubt that the current regime is not nearly strong enough to achieve the 25% reduction target by the year 2005. This has in fact since been confirmed by the Federal Minister for the Environment, Angela Merkel. When presenting the 2nd National Report on Climate Protection in April 1997, she stated that the target could not be achieved on the basis of measures initiated to date, and that additional measures would be required.

3 The Required Course Corrections

The dictum of the Social Democratic Party of Europe, that „… the market is a good servant but a poor master" is particularly relevant to the climate debate. In order to mobilize the potential of climate policy for innovation and job-creation, a clear regulatory framework is needed. But such a framework must not obstruct market forces. Rather, it must facilitate their development by ensuring dependability, predictability and planning and investment security. This is especially important for small and medium-sized companies who have the greatest potential for innovation.

The Federal Government’s 2nd National Report describes more than 130 policies and measures to reduce CO₂ and other greenhouse gases. These cover initiatives which have either been completed, are currently ongoing, or are being planned. The report also documents in great detail the numerous climate activities of the laender and municipalities. The catalogue of measures includes economic and regulatory instruments, such as increases in the mineral oil tax and the introduction of an emission-oriented tax on cars. The report also contains voluntary measures taken by industry, as per the „Statement by the Germany Industry on Preventive Climate Protection" of 27 March 1996, as well as other measures in the areas of research, training, higher education, information and communication. Most of these measures lead to the right direction, but nevertheless, they must be strengthened and implemented more rapidly.

However, other initiatives planned by the Federal Government in particular the amendment of energy industry legislation, are counterproductive. If realized, they threaten to stifle current efforts at increasing energy efficiency and promoting renewable energy sources. Also inadequate are the Federal Government plans to mobilize investment in the manufacturing industry, the service sector and in the building industry, in order to provide broad-based support for renewable energy and the reduction of CO₂ from the traffic sector.

The five following measures, with their wide-ranging effects, are needed to bring about the necessary course corrections:

• energy law reform
• ecological tax reform
• a solar initiative
• an ecological turnaround in the transport sector
• a federal law to reduce CO₂ emissions

3.1 Energy Law Reform

The amendment of the Power Industry Act, as proposed by the Federal Government must be prevented. Efforts to amend that act must be re-oriented in new directions for the following reasons (cf. Jung 1997, Hennicke 1997).

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• The bill is counterproductive to environment and climate protection because it will intensify price and cost competition, which due to the absence of „ecological crash barriers" will stimulate efforts at the microeconomic level to achieve profits by increasing the volume of supply.

• The bill encourages concentration because it reinforces the economic monopoly held by consolidated energy-supply companies. It does so by removing the legal territorial protection for municipal energy-supply companies, and by failing to provide comprehensive regulations for competition on a supra-regional level for power generation and distribution. Access to the market will be more difficult for newcomers, because of the lack of a clear law regarding the generation of electricity from external networks, and as well, due to the lack of price transparency for network use. The lack of cost and price transparency positively encourages „loss-leader pricing" in favour of bulk buyers and serves as a detriment to the commercial and household customers.

• The bill jeopardizes the existence of municipal energy suppliers because: it weakens the municipal investors and decentralized market players in the areas of cogeneration, rational energy use and renewable sources; it undermines the financial capacity of municipal energy-supply companies; and it will result in lower municipal financial transfers for activities in the public interest, such as public transport, the maintenance of kindergartens and other important social institutions.

• The bill is hostile to small and medium-sized companies because the proposed competition system may enable the consolidated and regional suppliers to detach bulk customers of the municipal services from the municipal supply area. Moreover, the bill is contrary to social policy objectives. One key concern is that large cities with electricity-intensive industrial customers will suffer turnover losses of between 15 and 30%. Price increases of more than 10% for the remaining customers – households, trade, commercial companies – would be necessary to make up for this because the fixed costs for the municipal utilities are based principally on their obligation to supply energy to all customers (Jung, 1997, p. 11).

The overall effect of deregulation in the energy sector will be to prevent job-creating technological innovation and investment. It will undermine the very measures that are needed for effective climate protection, namely, the increased use of technologies for rational energy use, the development of industrial and municipal cogeneration, and the broad introduction to the market of renewable energy sources.

Instead, energy law reform should be conducted in light of the draft Power Industry Act, as proposed by the Social Democratic Party (Bundestagsdrucksache 13/7425 dated April 15, 1997). As such, it should be based on the following key points:

• The overall objectives of climate and resource protection should be given priority over private interests. Instead, priority should be given to rational energy use, cogeneration and renewable energy sources. And these priorities should be contained in an amendment of the Power Industry Act. The Danish regulations for cogeneration and renewable energy sources, combined with simultaneously low electricity prices, illustrate the fact that such special treatment is compatible with the effective stimulation of economic competition (cf. Jung 1997, p. 9).

• Energy-supply companies must be required to undertake „integrated resource planning" in accordance with the draft of the EU Commission for an RTP Directive (Rational Planning Techniques). This includes the obligation to provide services for the rational use of energy for those customers whose volume of use represents 3% of total electricity sales, along the lines of similar regulations in California and Denmark. Should

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  energy-supply companies be unable to fulfill this obligation, they would be permitted to delegate this task to energy agencies (Energieagenturen) or other private partners.

• In order to promote renewable energy sources in the market, the current Electricity Feed-In Law should be integrated into this new regulatory framework. This would obligate all network operators to place priority on electricity that is generated from renewable energy sources. The current level of payment for feeding electricity into the grid does not necessarily have to changed. Furthermore, the generation of electricity from biomass should be included. In order to prevent regional imbalances in terms of financial burdens, a supraregional cost-offsetting system should be introduced for all network operators.

• In order to protect the existing cogeneration power plants and to encourage further construction of such plants, a differentiated arrangement is necessary. Network operators will be obliged to give priority to accepting electricity from municipal and industrial combined co-generation plants, as is the case with renewable energy sources. The present contractual arrangements between network operators should be replaced by a statutory order (Verbaendevereinbarung). This will regulate a differentiated payment system for the feeding of electricity into the grid according to size categories and efficiency levels.

• In order to avoid distortion of competition in the European single market for electricity, the measures described above should also be incorporated into corresponding EU regulations. For this purpose, the „optional provisions" and range of choices contained in the EU Electricity Directive should be translated into binding regulations. Moreover, the draft EU Directive on „Rational Planning Techniques" should be passed as quickly as possible (see Chapter III/4).

Supporting measures for energy pricing will be required, in addition to energy law reform. These are necessary to guarantee the long-term profitability, as well as investment and planning dependability for energy efficiency and energy-saving measures, especially in the area of building restoration, solar energy and the development of district heating systems. Special efforts are also needed to develop those renewable energy sources, which are not currently profitable, and introduce them to the market on a broad basis.

3.2 Ecological Tax Reform

Conventional economic instruments and energy policy measures alone, are not sufficient for a strong climate policy. These instruments necessitate the consideration of short-term social and economic distortions in individual regions and sectors, quite apart from the ecological effects and innovation impulses. „Price regulation must therefore be part of an overall strategy. This necessitates an instrument mix for designing structural change." (Müller, 1995, p. 3)

The following ecological tax reform proposal, which is based on DIW work (DIW 1994, 1997), is based on a differentiated, comprehensive strategy, which includes a mix of complementary instruments. In this context, ecological tax reform plays an important signal function. However, this function is dependent less on the absolute level of the energy price, but rather on a combination of the following structural elements:

• the price of energy will raise slowly, in small steps that are announced in advance, over a period of 10 years;
  
• in order to avoid competition distortion, special arrangements are needed for industry;
  
• the tax burden will be offset by the reduction of incidental wage costs. This will strengthen the investment capacity and competitiveness of German industry. In conjunction with the other elements of the regulatory framework, this should encourage an alliance between the environment and labor sectors.

The tax should be imposed on the energy content of natural gas, mineral oil products and electricity. Starting from an initial tax rate in the first year of 0.63 DM/GJ, a rate of 8.7 DM/GJ should be achieved in the tenth year, with an intermediate rate of 2.03 DM/GJ in the third year).

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Table 1: Price changes according to the DIW Model

2 Source for energy-specific CO₂ emission factors: Federal Environment Agency

Table 2: Energy tax according to DIW and the European Commission

Source for energy-specific CO₂ emission factors: Federal Environment Agency
1 Source: DIW 1997
2 Source: proposal for a Council Directive for introducing a tax on carbon dioxide emissions and energy, EC Commission, 10.5.1995, KOM(95) 172 final.
3 Source Proposal for a Council Directive: Restructuring the Community Framework for the Taxation of Energy Products, Commission of the EC, 12.3.1997, COM(97) final.

Introducing the DIW Model in Germany would result in the price changes listed in Table 1.

Table 2 shows a comparison of this proposal with the CO₂/energy tax proposal of the European Commission of 1992 (amended 1995) and with the energy tax proposal of the European Commission of 1997, which is merely intended to bring them in line with the minimum tax rates for fossil fuels.

A comparison of the DIW proposal with the EU Commission’s proposals shows how cautious the first phases of ecological tax reform will be. In the first year, for example, the price of electricity would be increased by a mere 0.23

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Pfennig and would thus be lower than the price increase in the EU Commission’s proposal for the harmonization of minimum tax rates on energy, amounting to 0.4 Pfennig per kilowatt hour. It would only rise to 3.1 Pfennig per kilowatt hour by the tenth year.

The DIW also examined a wide range of special regulations in developing its regulatory approach for. First, the DIW calls for a reduction of the tax rate for the entire industrial sector to a mere 20% of the normal rate (or 30% in a different scenario). Second, it is suggested that tax relief of the same order should be provided for energy-intensive companies. DIW correctly prefers the first option, because it entails less administrative work.

According to DIW calculations, the tax revenue obtainable from „across-the-board" taxation (i.e. without any special regulations) amounts to around DM 110 billion in the tenth year and, with a special regulation for industry, to around DM 70 billion in the tenth year (DIW 1997, p. 111). In view of the lower tax rates in the first years, revenue would be correspondingly lower.

The proposed compensation arrangement would provide sufficient revenue to enable reductions in incidental wage costs. The social insurance bodies spent approximately DM 100 billion in 1993 for activities that were not related to social security (Görres/Ehringhaus/von Weizsäcker 1994, p. 142). Therefore, after a 10-year period of increasing energy tax rates, enough revenue would be available to enable reductions in social insurance contributions. This means that relief could be provided to both employers and employees. In the year of introduction of the tax and in the subsequent years, there would be slight, but noticeable relief. The December 1995 proposal by the SPD party „Arbeitsplätze schaffen, Arbeitskosten senken, die Wirtschaft ökologisch modernisieren" („Creating jobs, cutting labour costs, ecological modernization of the economy") (BT Drs. 13/3230) is consistent with this approach.

The overall approach of the proposal allows for the promotion of ecological tax reform on a national level without fear of creating distortions in German industry. The proposal conforms with the European Commission’s policy regarding minimum tax rate harmonization, and moreover, it is not harmful to competition.

3.3 Solar Initiative

In 1995 renewable energy sources – hydropower, wind power, biomass, solar power, photovoltaics, geothermics, waste, sewage sludge, etc. – represented approximately a 3% share of German primary energy consumption (2nd National Communication 1997, p. 44). Yet this figure conceals the phenomenal increase in the use of wind energy in recent years, above all in coastal regions. In Schleswig-Holstein, for example, the share of wind energy in the state’s electricity consumption has increased to about 8% within just a few years. This development, which was accompanied by considerable improvements in technological and economic efficiency, demonstrates the positive effect of the Electricity Feed-In Law. At the same time, it highlights that renewable energy sources can provide a secure and significant share of the energy supply, if sufficient political support is provided.

The Federal Government’ s current policy disregards the innovation potential of renewable energy sources. As such, it should be criticized, especially in light of the broad-based cross-party consensus regarding the need for increased efforts. Reference is made to the SPD proposals that were made within the context of European and national energy law (Volker Jung, Energy policy spokesman for the SPD party) and the „Nationales Aktionsprogramm für erneuerbare Energien und rationelle Energieverwendung" („National action program for renewable energy and the rational use of energy") presented by the deputy-chairman of the subordinate working group on energy of the CDU/CSU party, Kurt-Dieter Grill (Grill 1997). The job-creation potential of renewable energy sources was only recently described in detail in a study by EUROSOLAR (EUROSOLAR 1997).

The proposed energy and ecological tax reforms will considerably improve the market po-

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tential for those types of renewable energy, which are relatively close to marketability. However, photovoltaics still requires further support over and above these initiatives. A solar initiative to promote the broad-based marketing of all those forms of renewable energy provided directly or indirectly by the sun should be launched, consisting of the following package of measures:

• improvement of the overall legal and administrative framework;
  
• establishment of a solar coalition made up of energy-suppliers, industry, the construction sector, the unions and banks, public authorities and the municipalities;
  
• campaigns to improve information, communication, training and further education;
  
• promotion of research and development.

The removal of legal and administrative obstacles is needed to mobilize long-term private investment in renewable energy sources. By contrast, short-term programmes catalyze „boosts in demand which blaze up like a straw fire, only to be rapidly extinguished again" (Lehmann 1996, p. 367). The following measures are intended to contribute to a more constant demand:

• exemption from building laws for selected plants and (within the framework of planning provisos limited to a certain period) – the granting of a privileged status for plants using renewable energy sources in the external sector in accordance with § 35 Para. 1 BauGB (Construction legislation);

• the obligation to consider the requirements of active and passive use of solar energy in building laws and regulations, as well as obligations to use solar energy to heat process water and to install the necessary structural prerequisites for the use of photovoltaic systems in new buildings;

• legally guaranteed access above all to roof surfaces for tenants, apartment owners and operating companies to facilitate the installation of systems for generating heat and electricity;

• exemptions from the obligation to implement compensatory measures in accordance with the Federal Nature Conservation Act for the use of renewable energy sources by small decentralized plants, and approval of investments in plants for the use of renewable energy forms as active compensatory and substitution measures for industrial and commercial projects;

• amendment of the Handwerksordnung (manual trade code) with the aim of registering larger mining partnerships when supra-partnership work is required for the installation of renewable energy technologies (cf. the proposals by Lehmann 1996, pp. 378-380).

A concrete alliance in the field of solar technology should be established within the broader framework of a solar coalition consisting of energy-suppliers, industry, the construction sector, the trade unions, the banks, insurance companies, the public sector and the municipalities. The major electricity suppliers, who, according to estimates, in the past few decades have built up reserves of more than DM 50 billion as a result of tax-free accruals and reserves at the expense of electricity customers, are particularly called upon to pledge their commitment. In 1991, the Deregulation Commission found that these companies are using such funds to increase their market strength in new areas of waste disposal and telecommunications (cf. Jung 1997, p. 8). The following projects should be implemented:

• establishment of a solar consortium for investments and the provision of funds for a „100,000 Roofs Program" for the installation of photovoltaic systems. The estimated financial requirements amount to DM 1.5 billion for a period of five years and should increase in equal measure to DM 500 million in the fifth year, starting with a financial investment of DM 100 million;

• the provision of start-up support and low-interest loans for the establishment of companies in the renewable energy sector;

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• joint initiative within the European Union for an export-promotion programme, „Power for the World", to provide electricity for rural regions in developing countries. Approximately 2 billion people in these countries are not connected to an electricity grid (cf. Lehmann 1996, p. 381).

The participation of private companies in this programme would represent the commencement of a new form of internal „joint implementation". German companies could credit their CO₂ reductions in Germany through the provision of investment funds to their CO₂ accounts. This is similar to the joint implementation modalities being discussed for CO₂ reduction projects abroad. The obligation assumed by German industry as part of a voluntary agreement to reduce CO₂ could in this way be complemented by concrete projects. Especially banks and insurance companies should be called upon to join in this agreement by industry in order to substantially contribute to CO₂ reduction and active climate protection.

One major barrier to the development and broad application of renewable energy sources is still the ignorance of the big players regarding the potential and costs of renewable energy technologies. This is why even those technologies which are already profitable today, such as solar collectors, are still hardly relied upon. An additional factor is the inadequate know-how on the part of architects, engineers, planners, craftsmen and government authorities. Broad-based campaigns to provide information and training are required to remove these barriers. The campaign should include:

• an image campaign with personalities from culture, sports, arts, the media, and youth culture;

• the incorporation of renewable energy-related information in the curricula of schools and vocational training institutes, universities and colleges, industry and crafts guilds, management and public authorities;

• the establishment of corresponding Chairs at universities, colleges and technical colleges;

• the improvement of technical consulting for manufacturers and fitters.

A Solar Agency, along the lines of the Japanese New Energy Development Organization, should be set up with the aim of improving coordination between the fields of research, development, demonstration and marketing. Their task would be to bring together representatives from the fields of science, the corporate sector, communication and academia, as well as users. By determining practical demand, the Solar Agency should at the same time ensure the concentration of research and development projects on the removal of recognizable deficits and bottlenecks. Intensive research and development efforts are necessary above all, in the following areas (cf. Lehmann 1996, p. 384):

• the further development of storage technologies;

• the link-up of renewable energy technologies with district-heating power stations and fuel cells;

• the further development of innovative solar cells and rationalization of production technologies;

• cost-reduction for flat collectors; and

• the further development of modern biomass technologies.

3.4 Ecological Transport Turnaround

The growth trend in CO₂ emissions from the transport sector continues unabated. Between 1990 and 1995, CO₂ emissions from traffic in Germany increased by 7.6%. The Federal Government in its 2nd National Communication states that: „the development of traffic volume in the private transport sector is characterized by a continuing trend towards motorized private road and air transport, accompanied by a drop in the share of rail and public road transport. In goods transport, the volume of road traffic increased substantially whilst the transport provided by the railway service decreased considerably over the total period under review" (2nd National Communication, 1997, p. 50).

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In order to avoid undermining the success of CO₂ reductions achieved in the other sectors by traffic-induced CO₂ emissions, it is necessary to initiate an ecological turnaround in the transport sector. Changing the present transport structures is a long-term process, but the course corrections required must be started today. These relate to the following five strategic aims:

• „disarmament" in the private car sector;

• ensuring a balanced ratio between public and motorized private transport;

• a resurgence of non-motorized transport;

• halting the growing volume of goods transport; and

• reduction in air traffic.

The „disarmament" in the private car sector promises major results in the short term. Two-thirds of energy consumption by cars do not result from transport requirements per se. Specifically, cars are too heavy, too big, engines are too powerful, acceleration capacity and top speed are too high and there are too many „extras". By means of a step-by-step „disarmament" and more intelligent design of vehicles, overall energy consumption by the motor vehicle fleet could be halved within a period of fifteen years.

This change of direction should be brought about by the following measures, to be announced in advance and implemented step-by-step:

• an increase in mineral oil tax (see also Chapter III/3.2) and an increased and redesigned annual tax;

• the introduction of consumption restrictions for individual vehicles; the target is the 3-litre car;

• prohibition of and limits for certain equipment features and:

• the introduction of speed limits on highways.

In the medium term, it is essential to create a balanced relationship between the share in traffic of public transport and motorized private transport. In addition to the proposed measures, the following measures should be introduced to reduce the volume of car traffic:

• development of an integrated passenger rail transport system using the latest technical and organizational solutions (e.g. integrated half-hour frequency, increased rail coverage, progressive electronics for train transport and safety, light-weight design);

• complementary systems in public transport in urban areas (light rail rapid transit/trams) and in rural areas (city and regional buses, paratransit services);

• progressive tariff systems in public transport; and

• a revised public financing strategy for road construction and public transport infrastructure.

Today almost 40% of all journeys – but only 4.5% of all person-kilometres – are made on foot or by bicycle. In the area of city planning, a strategy for the resurgence of non-motorized transport should be pursued in order to increase this share. It should comprise the following elements:

• reduction of the domination of motorized vehicles in the public transport space in urban areas by means of systematic traffic reduction, rebuilding and rededication of areas dedicated to traffic;

• optimization of the route network for non-motorized traffic (e.g. reducing detours in the form of routes through neighborhoods, protection against the elements in the form of arcades, green spaces with seating facilities);

• the promotion of increased density and functional use mix in housing areas;

• planning support and support in tax law for the direction away from car-oriented forms of housing and trade.

Goods transport is expanding even faster than private transport, especially road freight and air freight with their critical impact on the envi-

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ronment. This growth is less related to an increase in the volume of goods transported, but rather to increasing transport distances. By strengthening regional economic structures and developing sustainable production and consumption structures, it is possible to reduce goods transport in the medium and long term. The following measures should spearhead the reduction in the volume in goods transport:

• a gradual increase in the tax on diesel to bring it into line with the tax on gasoline;

• the introduction of a heavy-transport tax, measured in terms of total weight and distance traveled;

• technical requirements to be fulfilled by trucks, increased traffic monitoring and speed limits;

• development of an integrated rail freight transport system using the latest electronic, organizational and other technical know-how.

In the future, a considerable increase in air transport is expected (a doubling of person-kilometres in the next fifteen years). A precautionary strategy to reduce air traffic is therefore required. The following measures should be implemented:

• abolition of special tax conditions in air traffic (at present no mineral oil tax, no VAT);

• reduction of short-haul flights by creating suitable terrestrial transport connections and imposing limits in the area of the regional air traffic infrastructure.

3.5 Federal Law for the Reduction of CO₂ Emissions

A federal law requiring the reduction of CO₂ emissions should be enacted, and modeled after comparable legislation.

In March 1997, the Swiss Bundesrat (Upper Chamber) presented a bill after the CO₂ tax proposed in 1994 had been defeated. (Cf. Swiss Bundesrat 1997). The aim of the bill is to reduce CO₂ emissions by 10% by the year 2001, on the basis of 1990 levels. A differentiation is made between the sources of the emissions, with a 15% reduction being proposed for combustion fuels and 5% for propellants. Both these targets would become legally binding. Targets are to be fixed for individual sectors by means authorizing statutory orders.

The overall target is to be achieved first, by voluntary measures, which are already in place. These measures comprise, among others, a heavy-transport tax, an Alpine-transit tax and an increase in fuel tax.

Second, the bill also provides for the introduction of a subsidiary CO₂ tax on fossil fuel sources of energy, should the other measures fail to achieve the stated targets. The year 2004 was chosen as the earliest date for the introduction of this tax.

A maximum tax rate for propellant fuels is to be introduced at 210 Swiss Francs per tonne of CO₂ (the equivalent of DM 256/t CO₂). For combustion fuels, there will be a maximum tax of 30 Swiss Francs per tonne of CO₂ (the equivalent of DM 37/t CO₂).

Tax exemption is available for those companies which undertake efforts to make adequate reductions in their CO₂ emissions. These efforts must comprise at a minimum, plans for such measures, a review of those measures and regular reporting. Reductions of CO₂ emissions in „joint implementation" projects may be partially offset.

The revenue from this tax is not to be used for any specific purpose, rather it will be re-distributed in the form of per capita payments and to industry, on a sectoral basis.

A German bill should be designed along similar lines. This would translate the stated commitment by the Federal Government of a 25% reduction of German CO₂ emissions on 1990 by the year 2005, into a legally binding obligation. This is a logical step, since the German Government is pressing for a legally binding international reduction agreement. In view of the German target year of 2005, at the very earliest, the law should be enacted by the year 2000.

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The offsetting of obligations by means of „joint implementation" projects should be carefully evaluated. Certain bottleneck features are required to provide the necessary impulses for structural change. Concentrating too much on compensatory measures increases the inherent risk „of giving up the necessary structural change in Germany and giving away national innovation potential which in the long term determines competitiveness" (Fischer 1992, p. 89; cf. also Luhmann et al. 1997).

The advantage of such a strategy is that it does not obstruct those voluntary measures, which promote the increased use energy efficiency, conservation and renewable energy sources. Instead it supports the implementation of the voluntary agreement for climate protection within industry and prevents „free-riding" by individual companies.

In their statement on precautionary climate protection, participating industries undertake to reduce specific CO₂ emissions by 20% from 1990 levels by the year 2005. 12 out of 19 firms have promised an absolute reduction of CO₂ emissions. According to the Federal Government, this voluntary undertaking covers 71% of industrial energy consumption, more than 99% of public electricity supply and parts of the domestic and small-consumer consumption share (Annual Report 1996, p. 8).

A further advantage of the strategy is the subsidiary character of the measures proposed above on energy law, fiscal and transport policy and the promotion of renewable energy sources. This makes it easier to implement fiscal measures. Furthermore, the Federal Environment Ministry is provided with an emergency brake if the other measures taken are insufficient to achieve the national target.

If one takes the maximum taxes in the Swiss bill as a basis in each case, in the event of the subsidiary regulation being applied in Germany, the resulting price changes can be represented as follows in Table 3.

Table 3: Subsidiary CO₂ tax

2 Source for energy-specific CO₂ emission factors: Federal Statistics Office.

4 European Climate Alliance

In preparation for the negotiations in Kyoto, the European Union proposed legally-binding reduction targets for three major greenhouse gases at 7.5% by 2005 and 15% by 2010, based on 1990 levels. These targets should be translated into binding legislation for the European Union, independent of the outcome of the negotiations.

„The EC should build upon their voluntary undertakings and develop concrete strategies for the implementation of the „first mover advantage". In particular, the EC should develop

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an innovation strategy for which CO₂ policy is a leitmotif and an orientation aid, in order to provide the market with ecologically compatible production processes and products at the beginning of the 21st Century" (Fischer 1992, p. 101).

A European climate alliance and a joint strategy by the European member states are necessary for two reasons. First, the European Union cannot achieve its reduction targets if Germany fails to achieve its own targets. German CO₂ emissions account for just under one quarter of EU emissions. Second, an individual country is limited in its ability to enact strong independent climate policy. This results from the effects of the European single market and EU policy on the possible scope available for national taking action. Reference is made to the significance of an active climate policy for the European integration process and foreign policy (cf. Chapter II/3.2).

The European CO₂ reduction and climate protection policy is basically formulated in the SAVE Programme, with its measures to increase energy efficiency, and in the ALTENER, JOULE and THERMIE programmes promoting renewable energy sources, other relevant technologies, and information and research.

In addition, the European Commission introduced a CO₂/energy tax in 1992, but the proposal failed to garner the necessary support. The proposal now submitted by the EU Commission to increase the minimum tax rate for relevant sources of energy, should be adopted as early as possible.

Against this background, the aim of German policy, in addition to meeting the EU standards of harmonization, should be to join forces and find common procedures with like-minded European member states, which have already introduced additional energy taxes.

In Europe, as in Germany, the most important task is to prevent efforts in climate policy from being undermined by the creation of counterproductive measures, especially in energy and transport policy, and by unsustainable structural policy. This also applies to agricultural policy and forestry policy (for forestry policy, cf. Schmidt 1997). The following are some examples of the course corrections that are needed:

• adding clear regulations for the promotion of renewable energy forms, co-generation, and measures to improve energy saving, energy efficiency and climate protection to the EU’s single market directive for electricity and the single market directive currently in preparation for gas. For this purpose, the Rational Planning Techniques Directive (see Chapter III/3.1) should be quickly adopted. As well, directives are needed for all renewable energy sources and co-generation, as well as a directive to govern the payment for feeding electricity into the grid.

• the introduction of a „Power for the World" export-promotion programme for the broad promotion of renewable energy sources (see Chapter III/3.3);

• a turnaround in transport policy which would give priority to rail transport in the development of European transport networks, the introduction of consumption restrictions for cars, suitable measures such as the introduction of a heavy-vehicle tax to stop the expansion trend in goods transport and the abolition of tax exemption for aviation fuels (see Chapter III/3.4);

• designing structural aid in line with the targets of CO₂ reduction to ensure the elimination of perverse subsidies, which promote a centralized electricity supply based on fossil or nuclear energy sources (this was the case, for example, with the financial support provided for the grid connection of Mallorca to the electricity network on the Spanish mainland).

In view of the institutional weakness of environment and climate policy in the political decision-making processes of the European Union, it is absolutely essential for the success of these climate-related course corrections, that the EU’s reduction targets are translated into law. Legally-binding targets will ensure the review of the climate compatibility of other EU programmes and thus lead to the formulation of a coherent European climate policy.