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Climate will be key to the new German coalition

On 26 September, 60 million voters headed to the ballot box in Germany. Three weeks later, the German population still doesn’t know who will form the next government. And it may be a while until they know who will take the reins from Angela Merkel, who is leaving politics after 16 years as Chancellor of Germany.

So what do we know about the election results in Germany so far?

German voters don’t stray too far from the status quo, with centrist parties typically collecting the largest share of votes. And the September election was no different with the largest share of votes going to Merkel’s centre-right party, the Christian Democratic Union (CDU), and the centre-left Social Democratic Party (SPD). But together, they don’t account for 50% of all votes, with the CDU scoring just 24.1% and the SPD, led by former mayor of Hamburg and current finance minister Olaf Schulz, receiving 25.7% of the popular vote.

Whilst CDU and SPD have worked as grand coalition partners in three consecutive governments since 2005, there won’t be more of the same this time around. Not only does the combined vote of the two parties not clear the 50% threshold, and the CDU recorded their worst result of the post-war period, but the CDU won’t accept a position as junior partner in another grand coalition.

Speculation about a three-way coalition, led by one of the two major parties and featuring two smaller parties, is intense. The two likely coalition partners with the SPD are the left-of-centre Green party (The Greens) and the free-market Free Democratic Party (FDP), which received 14.8% and 11.5% of the vote, respectively.

Generational shift in voter behaviour

Earlier this year, the Greens had even entertained hopes of winning the election, at times holding 28% in pre-election polls. They owe this in large part to the next generation of German voters who are channelling their political clout through the Greens and FDP, leading both The Greens and the FDP to a position of influence over where coalition talks are heading.

Both parties hold entirely different positions on how to reach Germany’s climate goals, with the FDP favouring a free-market approach to climate and social policy (relying on high CO2 pricing) whereas The Greens see this as “deeply socially unjust”. Regardless of these disagreements, there is a broad consensus that Germany needs to transition to net zero emissions and a green economy.

Jamaica or Traffic Light – what will it be and when will we know?

Germans will likely end up with one of two possible coalition scenarios, a centre-left coalition with two progressive parties (SPD and The Greens) and the FDP, or a centre-right coalition with the CDU and former coalition partners FDP, and The Greens.

The process to an agreement on any coalition will likely take weeks, if not months, as it has in the past. After the last election in September 2017, it took six months to form a new government. And it wasn’t always clear back then that it would be yet another grand coalition either. Back then, a Jamaica coalition (named after the colours of each party (CDU-black, The Greens-green, FDP-yellow) seemed likely until the FDP walked away after two long months of negotiations citing irreconcilable differences.

And it seems likely that the FDP may be the “kingmaker” again in 2021. The alternative to Jamaica, Traffic Lights (you guessed it, another name based on party colour coordination, SPD-red, FDP-yellow, The Greens-green) is emerging as the most likely scenario after The Greens and the FDP last week announced that they have entered extensive negotiations with the SPD as their preferred coalition partner.

As progressive parties, the SPD and The Greens are naturally more aligned and both parties have indicated their preference to work together to form government. In the past, the FDP has been openly sceptical towards this coalition option, but has now come around and announced that Traffic Light talks will move into the next stage.

A further indicator that a centre-left coalition is the most likely outcome is the increasing internal focus/in-fighting of the CDU following the devastating election loss. The CDU’s top candidate and current premier of the most populated state North Rhine-Westphalia, Armin Laschet, has indicated to put the party leadership up for revote at a just summoned party congress before the end of the year. And several other Merkel allies, such as the minister for economic affairs and energy, Peter Altmeier, and current defence minister Annegret Kramp-Karrenbauer announced that they will vacate their seats in Parliament to make way for a new generation that can rejuvenate the party.

Climate policy at the heart of all conversations

But whether Traffic Light or Jamaica, climate policy will be the red line The Greens won’t cross. “The next German government has to be a climate government”, repeated The Greens top candidate Annalena Baerbock just before the election when talking to German television channel ZDF.

And while there are many differences in their approaches on how to deal with climate change, both the progressive and liberal parties agree that climate change needs to be addressed. “We agree on the goals but still need to talk about the appropriate measures,” said Nicola Beer, a deputy leader of the FDP.

While the Greens are traditionally pushing for a more regulatory approach to shift to more climate-friendly means of production and transport, the FDP traditionally prefers market-based solutions to further investment in emissions-free technologies such as hydrogen wind turbines.

According to Politico Europe, there are some starting points at least with both parties supporting higher prices for CO2 emissions via the existing emissions trading system and both wanting to use the profits from these certificates to finance social support for low-income families and those financially impacted by the green transition. Disagreements can be expected, however, when it comes to determining the price of such certificates – the FDP wants it determined by the market, whereas the Greens demand it set by the state.

Other divisive topics include the Greens’ demand for a speed limit, an outright ban on combustion engine cars by 2030, which the FDP rejects, and an earlier coal phase-out by 2030 instead of the currently agreed 2038. As for the latter, the market economy driven liberals prefer incentives over regulations for energy providers to switch to renewables. But, as FDP general secretary Volker Wissing posted on his Instagram account: “In search of a new government, we’re exploring common ground and bridges over divisive topics. And even find some. Exciting times.”

If the progressive parties will manage to align with the FDP on climate-related topics such as CO2 price mechanism and technology-versus-regulatory approaches, there are still other hurdles to overcome, though, such as tax reforms and other fiscal policies within the eurozone before a coalition announcement can be expected.

Assuming they overcome these hurdles – what can we expect from the Traffic Light coalition internationally?

A coalition including SPD and Greens will likely support turning the NextGeneration EU fund (which finances the majority of pandemic recovery and Green Deal projects) into a more permanent mechanism and pushing for a relaxation of debt rules in the Eurozone, thus softening its EU influence overall. Given the FDP’s hawkish fiscal stance, this may lead to some combative coalition potential right from the start further elevating the role of France within the European Union, who will be taking over the EU Presidency in January 2022.

Further afield, a left-of-centre coalition might take a tougher stance on China and Russia, with the Nord Stream 2 gas pipeline remaining a contentious issue for The Greens. With The Greens almost certainly being a part of the next ruling coalition, an acceleration of ESG focus on all policy issues can be expected, including in the ongoing EU-Australia trade negotiations.

Past Events

Past Events

The EU Taxonomy in practice – supporting the transition to a sustainable economy

On 7 October 2021, the Network collaborated with the Australian Sustainable Finance Institute (ASFI) to share insights on the European Union’s Taxonomy and its practical application to support the transition to a sustainable economy. 

The European Commission published its renewed Strategy for Financing the Transition to a Sustainable Economy on 6 July 2021, some years after the 2018 Sustainable Finance Action Plan laid the foundations for a sustainable finance system in the EU. The EU’s sustainable finance policy framework, which aims to align financial flows with its sustainability ambitions (such as the 55% emissions reduction target by 2030 and other measures in the European Green Deal), includes a classification system of sustainable activities – the EU Taxonomy, a disclosure regime for financial and non-financial companies (SFDR and CSRD) and tools to help investors contribute to the EU’s climate goals (EU Climate Benchmark and EU Green Bond Standard). 

Workshop participants from the Australian finance and investment sector heard from technical experts from the EU’s Platform on Sustainable Finance: 

Presentation: EU Taxonomy

Listen to the audio recording here

View the event video recording here

Demonstration to Commercialisation: Market insights in the tidal sector

In collaboration with the Australian Ocean Energy Group (AOEG), the latest event in the Australian Ocean Energy Market Forum series took place on 24 August 2021, 4pm – 5pm AEST (8am – 9am CEST). This event delved into the challenges and opportunities around commercialisation in the tidal energy sector.

Marlène Moutel, who has worked as a commerical business development engineer for three years at SABELLA (an innovative tidal technology developer) brought great insight to the process of taking demonstration projects to market.

In consideration of the increased growth of tidal projects in Europe, she discussed:

  • Consumer needs, competing values and social acceptability
  • Integration of tidal energy and solar/wind energy
  • Energy storage challenges
  • Moving to mass markets through small pilot projects
  • Optimising and de-risking technology
  • Consideration of targets and regulations
  • Policy, finance, and insurance impacts on commercial deployment

Presentation: Market Insights for the Tidal Sector

Listen to the audio recording here

View the event video recording here

Carbon Border Adjustment Mechanism

The European Union-Australian Climate Business Network and Professionals in Trade co-presented a lively roundtable discussion on 15 July 2021, on the European Commission’s much anticipated carbon border adjustment mechanism (CBAM) to price carbon on EU imports, following the release on 14 July 2021, of the major ‘Fit for 55’ package of policy measures to put the EU on track to cut carbon emissions by 55% by 2030.

Following introductory remarks by the CEO of the EABC, Jason Collins on the Australian industry and trade context, our guest speaker Vicente Hurtado Roa, Head of the Energy Taxation and other Indirect Taxes Unit at the Directorate General of Tax at the European Commission, outlined the objectives behind the policy to prevent carbon leakage and incentivise third countries to reduce emissions and adopt green policy frameworks.

Applying in the first phase to heavy industry including steel, iron, cement, fertilisers, aluminium and electricity, and covering more than 45% of the C02 emissions of EU’s Emissions Trading Scheme (ETS) sectors, importers of goods will be required to buy certificates linked to the average trading price of ETS allowances in the week prior to import.

Expected to be extended to other sectors in the second phase, the transition phase from 2023 to 2025 will involve data collection and reporting of actual embedded emissions, with importers from 2026 required to declare the embedded emissions in total goods imported based on set rules for calculation. If a non-EU producer can show they have already paid a carbon price on production in a third country, that amount will be deducted from the price paid for certificates.

Extensive international discussions are to follow with third countries and the WTO to seek their views and ensure compatibility with multilateral trade rules, with the CBAM designed to be replicated by international partners. The mechanism is to be implemented from 2026, with free allowances to industry under the ETS phased out by 2035.

See recent paper from Australian Industry Group‘Swings and Roundabouts – the unexpected effects of Carbon Border Adjustment on Australia’ on the impacts of the EU’s CBAM and similar climate policies elsewhere on Australia’s trade competitiveness.

The Role of EFW in circular value chains

The European Union-Australian Climate Business Network held a complimentary industry webinar on Thursday, 8 July 2021, hosted by WMRR, to delve into how and where energy from waste (EfW) fits into the circular economy puzzle, drawing on the EU’s long and proven experience.

Dr Ella Stengler, who has been the managing director of the Confederation of European Waste-to-Energy Plants (CEWEP) for 18 years and has years of experience dealing with European WARR policy and legislation, joined us via Zoom to share insights from Europe’s EfW journey.

In considering EfW’s role in circular value chains, she also discussed:

  • The European Green Deal and recycling policy framework including implications of circular economy initiatives.
  • EU Industry practice and responses, as well as future developments.
  • EU sustainable finance frameworks and implications for EfW finance and investments.

If you are interested in finding out more, please access the recording with this passcode: #4%?8hw0

There also is a copy of Dr Stengler’s presentation for further reference.

Presentation: Waste-to-Energy and EU Policy 

View the event video recording here

Australian Sustainable Finance Initiative Technical Workshop

In collaboration with the Australian Sustainable Finance Initiative (ASFI), the Network presented an expert workshop on Wednesday, 7 July 2021 to share information on the EU Sustainable Finance Platform and its work on the EU Taxonomy, in the context of wider global climate and policy trends.

This event is part of the European Union Australia Sustainable Finance project, an initiative of the European Commission which aims to facilitate knowledge sharing among Australian and European experts on the implementation of financial system frameworks to build knowledge and capability in the Australian market and support the implementation of Australian Sustainable Finance Roadmap.

ASFI, Climate-KIC Australia and European Union-Australian Climate Business Network are partnering on a series of industry roundtables and public events during September to December 2021, convening representatives from government; regulatory agencies; financial and investment sectors; researchers; industry, labour and professional associations.

Speakers for this event included:

Presentation: EU Sustainable Finance Framework

Global Ocean Energy Solutions: from Technology Push to Market Pull

The industry webinar on ‘Global Ocean Energy Solutions: from Technology Push to Market Pull’, which took place on 6 July 2021 in collaboration with the Australian Ocean Energy Group (AOEG), highlighted the role of ocean energy, future energy systems to balance the renewables mix and as part of integrated energy solutions with multiple business cases. 

The global effort to decarbonise has sparked rapid growth in renewable energy production. To understand more about global ocean energy market opportunities, underscoring the drivers for ocean energy update and implementation constraints such as policy settings, finance and risk; and specialised markets such as aquaculture, utilities, offshore infrastructure and others, the Dutch Marine Energy Centre (DMEC) presented its market development approach and learnings demonstrated through case studies on on offshore wind developers and the oil and gas sector as end users of ocean energy.

Key highlights from the Forum were:

  • DMEC is accelerating marine energy development by integrating innovation, capital, policy and markets. Their market work is to solve the energy needs of other industries through ocean energy.
  • The outlook for the uptake of marine energy is very positive, which is now tipping point in terms of raising capital raise and market entry.
  • DMEC seeks non-traditional market opportunities for ocean energy technologies which have specific characteristics that help make ocean energy a viable option.

Speakers for this event included:

Presentation: Marine Energies From Technology Push To Market Pull  

View the event recording here

Listen to the audio recording here

Financing the Circular Economy

The second webinar in our Circular Economy series on ‘Financing the Circular Economy’ took place on 10 December. Circular economy experts from The Netherlands, Italy and Hong Kong engaged in a panel discussion on the role of finance in enabling the transition to a circular economy.

The circular economy makes efficient use of existing resource so that they are not consumed and discarded but re-entered into a system that creates value again and again. This requires investment capital and innovative financial instruments that reflect the changing money flows and risks of these new ways of doing business.

This system shift fundamentally changes the role of both the business as well as the financier. In this webinar, we discussed questions such as:

  • How are circular businesses different from their linear competitors?
  • How can financiers adjust their ways of operating so that they enable circular innovations, and how can businesses attract investors by making their business model as appealing as possible for financiers?
  • What kinds of risks and opportunities arise when switching from linear to circular business models?

Speakers for this event included:

  • Jan Raes, Global Sustainability Advisor for Corporate Strategy and Sustainability at ABN AMRO
  • Marco Boscolo, Head of European Growth Policies at Intesa Sanpaolo
  • Edoardo Sabatino, IMI Corporate & Investment Banking at Intesa Sanpaolo

This webinar is an opportunity to hear European financial sector institutions present on comparative approaches to the role of finance and policy in enabling the transition through case studies including the global policy landscape, how the transition at national level is being supported, the policy and institutional capabilities required, and the approach to mobilizing capital for circular investments.

Presentation: Intesa Sanpaolo

Presentation: ABN AMRO 

View the event recording here

‘Accelerating the Ocean Energy Opportunity through Green Hydrogen’

The commercialisation of green hydrogen is an essential step toward a 100% renewable future. Green hydrogen has the potential to meet the exponentially growing demands for renewable energy to support the electrification and decarbonisation of heavy industry and transport sectors.

A significant amount of research and effort is taking place exploring ways to cost-effectively produce green hydrogen. EMEC is investigating several ocean-related hydrogen projects, including tidal energy as generation source to produce green hydrogen. http://www.emec.org.uk/projects/hydrogen-projects/iteg/.

The European Marine Energy Centre (EMEC) in Orkney Scotland, is the only centre to provide developers of both wave and tidal energy converters – technologies that generate electricity by harnessing the power of waves and tidal streams – with purpose-built, accredited open-sea testing facilities.

The recently announced EMEC ‘Flow’ project using a unique combination of tidal power and flow batteries at EMEC’s tidal energy test site on the island of Eday, will power EMEC’s hydrogen production plant, demonstrating the world’s first continuous hydrogen production from variable renewable generation. This is the first time that a flow battery will be coupled with tidal energy and hydrogen production, which will support the development of innovative energy storage solutions being developed in the Interreg NWE ITEG project.

Our speaker Rob Flynn shared relevant EMEC experience on:

  • EMEC’s research on the ocean energy/hydrogen connection and the Orkney context
  • Share high-level information about the market response to green hydrogen generated by ocean
  • Describe the key market demand/end-user challenges EMEC are seeing with the development and implementation of their OE/hydrogen projects.
  • Share lessons learned from EMEC experience to strengthen hydrogen/ocean energy market development opportunities in Australia.

View the event recording here

Circular Business Model and Market Transformation

The first part of a three-part event series on Circular Economy took place on 1 December. We talked to experts to deepen our understanding on the systemic and coherent circular policy famework and the opportunities presented by new business models.

Australian jurisdictions have a shared vision of transitioning to a circular economy and this shift involves fundamental changes across value chains – everything from the design of products and circularity of materials flows, to creating the right incentives and legal structures to stimulate circular business ideas.

Equally essential is the consumer, who must be encouraged to create demand in order to drive the success of the circular economy, alongside investment capital and innovative financial instruments that reflect the changing money flows and risks of these new ways of doing business.

The webinar featured speakers from the European Union and Australia, including

  • Veronique Hyeulle, adviser for Global Sustainable Development at the Directorate General Environment to the European Commission, who presented details on the EU’s Circular Economy Action Plan
  • Jyri Arponen, Senior Lead of Circular Economy from the Finnish Innovation organization SITRA, who spoke on the practice of new business models, as well as
  • Paul Hughes, Managing Director & CEO at Integra Systems (Victoria) and Wido van den Bosch, Managing Director at Brink Industrial (Netherlands), who presented a case study on new ways of collaborating between an Australian and Netherlands business partnership.

Presentation: New EU Circular Economy Action Plan

Presentation: Creating Values with Circular Business Models

Case study: Australian and Netherlands business partnership

View the event recording here

‘First Fuel’ podcast: Renovating Europe with Adrian Joyce

Hear Adrian Joyce, Secretary General of The European Alliance of Companies for Energy Efficiency in Buildings (EuroACE) talk with Luke Menzel, CEO of the Energy Efficiency Council, about the Renovate Europe campaign and the growing  momentum for the Renovation Wave as a part of the EU green recovery.

Listen to the podcast here

‘The impact of COVID-19 on Global Smart Energy’ webinar

The Australian Smart Energy Council‘s online event ‘ The impact of COVID-19 on Global Smart Energy” on 29 April 2020 heard Mate Heisz, Head of International Co-operation at Solar Power Europe give his perspective on the impact of COVID-19 on the smart energy industry in Europe.

View the event recording here