IEEJ：December 2019 ｃ○IEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (457)

December 6, 2019

Gloom of Germany as Great European PowerKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanIn Germany, a key great power as the core of Europe or the European Union, various
challenges involving politics, economics, energy and environment have loomed, with their future
courses and effects attracting global attentions. Among European issues, the United Kingdom’s
withdrawal from the European Union, known as Brexit, has been covered dominantly by mass media,attracting global attentions with its future course remaining a matter of great concern. While theBrexit issue is undoubtedly important, challenges facing Germany are similarly important, exerting
great influence on Europe and the world.
I would like to begin with Germany’s economic problems. Germany is the world’s fourthlargest economic power, with its GDP standing at about $3.9 trillion, accounting for 5% of global
GDP in 2017. Within the European Union, Germany is a dominant economic power commanding
21% of EU GDP. The German economy has driven European growth, sustaining robust expansion.
Though posting negative growth in 2009 after the global financial crisis, German economy has later
continued expansion, with its annual economic growth averaging around 2% from 2014 to 2018.
Germany’s economic growth has contributed much to overall European growth. Germany has
boasted excellent industrial competitiveness and benefited from the euro’s relative weakness against
the former German mark reflecting weaker economies in southern Europe. As the world economy
has continued to expand, the weaker euro than indicated by Germany’s competitiveness has
contributed to increasing its competitiveness to expand its economy further.
At present, however, the German economy is stalling, with economic growth in 2019
projected at 0.5%, far less than the average for the past several years. It grew 0.1% in the third
quarter of this year after contracting 0.1% in the second, managing to avoid a recession defined as
two straight quarters of contraction. Anyway, its growth has recently been close to zero. Recent
factors are cited behind the powerful German economy’s stagnation, including an export slump
caused by a global economic slowdown and China’s economic deceleration under the U.S.-China
trade war. Structural factors are also pointed out, including Germany’s traditional industrial structurein which the economy depends heavily on exports by automakers and other manufacturers, as well as
cost-boosting factors like labor cost hikes. As the future course of the world economy grows more
uncertain, no optimism can be warranted for the future German economy.
Second, Germany also sees various political challenges. Since 2005 when Angela Merkel
became chancellor, she had maintained her stable government management and political base andher leadership in Europe even in the face of various developments until recently. Merkel had
demonstrated her strong presence among the Group of Eight (or Seven) leaders, securing Germany’sinfluence on the international community and its political stability. While having sustained her
position as leader of a major power, Chancellor Merkel has recently faced signs of decline orvacillation in her political base and power. Through the general Bundestag elections in September1IEEJ：December 2019 ｃ○IEEJ 20192017, her Christian Democratic Union (CDU) remained the largest German political party but lostseats, leading to difficult coalition negotiations. Merkel managed to launch her fourth term as
German chancellor in March 2018. In October 2018 after the CDU’s consecutive defeats in local
elections, however, she offered to give up on running in the CDU leader election in December. Theoffer triggered post-Merkel politics in Germany, while she was set to remain chancellor until herterm expires in 2021. Later, German local and European Parliament elections, as well as a leader
election for the CDU’s coalition partner, the Social Democratic Party, indicated the Merkel regime’sdeclining leadership. The political situation has grown fluid in Germany that has led Europe and theEuropean Union, with the future course of German politics attracting global attentions.
In such situation, various challenges and uncertainties have loomed in regard to Germany’senergy and environment issues. According to the BP Statistical Review of World Energy, German
primary energy consumption stood at 324 million tons of oil equivalent in 2018, indicating Germany
as the sixth largest energy consumer in the world and the first largest in the European Union. Oil
accounted for the largest share of the primary energy consumption at 35%, followed by 23% forgas, 21% for coal, 15% for renewable energy and 5% for nuclear. Coal commanded the largest shareof the power mix at 35%, followed by 32% for renewable energy, 13% for gas and 12% for nuclear.
Germany has adopted a nuclear phase-out policy in response to the 2011 Fukushima
nuclear power plant accident, promoting the so-called Energiewende initiative for energy transition
featuring renewable energy expansion and energy efficiency improvement. At the same time,
Germany has taken proactive measures to reduce greenhouse gas emissions in a manner to lead theEuropean Union and the world. German energy initiatives have attracted attention from energy
policy and industry stakeholders in the world as a model.
As a result, renewable energy including wind power has expanded to the extent where it isabout to become the largest electricity source in Germany. The expansion has been supported by thefeed-in tariff system, which has basically passed cost-up in feed-in tariff surcharges on to theresidential sector with consideration given to the adverse effect on industrial competitiveness.
Consequently, German residential sector electricity bills have greatly increased up to one of thehighest levels in Europe. As a matter of course, German people are conscious of environmental
conservation and support renewable energy expansion, having the potential to accept electricity bill
hikes to some extent. As the nuclear phase-out is completed in 2022 and followed by the new coalphase-out policy as explained below, however, attention will be paid to how German electricity costs
would change and how the change would affect German society.
In addition to the electricity bill issue, Germany has an attention-attracting issue thatinvolves CO2 emissions. Since Germany shut down eight nuclear power plants in response to theFukushima accident, thermal power generation using abundant domestic lignite resources, as well as
renewable power generation, has played a key role in meeting electricity demand. As a result, thepace of CO2 emission reduction has changed remarkably. German CO2 emissions declined
particularly in the 1990s, falling from 1 billion tons in 1990, the standard year for emission cuts, toless than 0.8 billion tons in 2009. In the 2010s, however, the decline decelerated, and CO2 emissions
effectively leveled off, while indicating a 5% fall in 2018 from the previous year. In such situation, aGerman government report released in June 2019 noted that Germany could fail to attain the GHG
emission reduction targets of 40% for 2020 and 55% for 2030. The failure is a serious problem forGermany that has taken leadership in cutting GHG emissions in the European Union and in theworld. Therefore, the German government has decided at last to develop a plan for phasing out coal
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IEEJ：December 2019 ｃ○IEEJ 2019by 2038 and to provide the domestic coal industry with massive support including employment
related measures.
As the German economy stagnates with uncertainties growing about its future course,
various energy and environment challenges including the abovementioned two are looming
simultaneously. Germany’s Energiewende path may be bumpy amid calls for enhancingdecarbonization initiatives. The fate of the German energy transition will attract attention fromenergy stakeholders throughout the world.

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