Germany has reached a 40 billion euro ($45bn) agreement with its coal-producing states to begin phasing out the use of brown coal, or lignite in energy production, as the country aims to shut down all coal-fired power plants by 2038.
Federal Minister for Economic Affairs and Energy Peter Altmaier said on Thursday that companies in western Germany would receive 2.6 billion euros ($2.9bn) as compensation, and those in the eastern Germany would receive 1.75 billion euros ($1.95bn).
The government is looking to table the coal exit law in Parliament on January 29, while the agreement between the federal government and states is biding and should be finalised by May, he added.
“What we have here is a good agreement for climate protection because it makes it clear that we are taking it seriously,” Altmaier told reporters.
Closing the power plants would also mean shutting the mines that feed them, adding to the economic cost of the shutdown.
The government will pay up to 14 billion euros ($15.61 billion) in financial aid to the affected states of Brandenburg, North-Rhine Westphalia, Saxony and Saxony-Anhalt until 2038, government spokesman Steffen Seibert said in an earlier statement.
Berlin would take further measures worth up to 26 billion euros ($29bn) to help brown coal regions until 2038 at the latest. It would pay compensation to employees affected by the coal exit law until 2043.
The government will also provide an annual subsidy starting 2023 to energy-intensive companies who compete internationally in order to compensate for higher electricity costs caused by the new law, Seibert said.
In 2026 and 2029 the government would review whether Germany was producing enough power from alternative sources to justify completing the coal exit in 2035, three year earlier than planned.
The loss of adjustable energy sources caused by the coal exit should be replaced by two additional natural gas-powered plant capacities at existing plants, for example at Jaenschwalde in Brandenburg, the spokesman added.
Chancellor Angela Merkel‘s government concluded a deal with regions most affected by the plan on Thursday after discussions that began on Wednesday evening and lasted well into the night.
“It was a long night – it lasted until 2am – but we were able to achieve a sensible agreement,” Armin Laschet, minister president of the state of North-Rhine Westphalia, said in an interview with Deutschlandfunk radio. “The timeframe that we’ve agreed on is ambitious, but realistic.”
Laschet estimates that approximately 3,000 jobs in his state will be affected by the closures.
The agreement is part of measures to help Merkel’s administration achieve a target of cutting greenhouse gas emissions to 55 percent of their 1990 level by 2030.
A “massive expansion of wind and solar energy” will be necessary to exit coal, Minister of the Environment, Nature Conservation and Nuclear Safety Svenja Schulze said.
Germany is the world’s largest producer of lignite and it fuels about 19 percent of the country’s electricity capacity. However, the fuel is considered the most polluting type of coal because its low heat content means more must be burned and it contains a large amount of impurities such as toxic chemicals.
Late last year, the German government agreed not to force hard coal power plants to close over the next seven years. The government plans to use a mixture of subsidies and tenders to encourage operators to close hard coal plants beginning this year.