Incentives create leading position in market

Published: October 9 2008 03:00

When Blackstone, the buy-out group, announced a €1bn investment in a wind farm development off the German coast in the summer, it highlighted the crucial role in its decision that was played by the German system of regulations and incentives.
"Projects of this scale have been made possible by Germany's comprehensive regulatory framework and incentive schemes for renewable power, as amended by German Parliament at the beginning of June, 2008," according to Blackstone.
Incentives for renewable energies have pushed Germany into a market-leading position. Its onshore wind installations account for about half the total installed capacity in Europe. In spite of its cloudy skies, Germany is also the largest market in the world for photovoltaic systems, which convert sunlight into electricity. It is also the largest user of biofuels in Europe.
The main tool has been a predictable policy framework established by the Renewable Energies Act, which requires energy companies to purchase power generated from renewable sources at an above-market price. Reforms this year strengthened the legal framework for energy-efficiency investments, while stimulating more wind farms through higher electricity tariffs and lowering subsidies for the solar power industry.
The tax system has also played a part in Germany's environmental reforms. Following Scandinavia, and some other European countries, it embarked on ecological tax reform in 1999.
It offset the introduction of a new electricity tax and a sharp rise in the country's existing petroleum tax with reductions in work-related tax.
The importance of manufacturing in the economy has meant that taxing carbon emissions has proved a more contentious aspect of Germany's environmental policies.
Special arrangements for lower environmental tax rates were made for companies in the manufacturing, agriculture and forestry sectors.
This year, German industry has mounted a rearguard campaign against European Commission proposals for an auction of the carbon emission permits allocated under the EU-wide emissions trading scheme.
It argued that replacing the current free distribution of carbon-dioxide permits with a mandatory auction between 2013 and 2020 would cost billions of euros and damage competitiveness.
The German government last month decided to back an almost total exemption for energy-intensive industry from paying for permits.
Angela Merkel, chancellor, said recently that - although she supported the need to tackle climate change - she "could not support the destruction of German jobs through an ill-advised climate policy".
Copyright The Financial Times Limited 2008