Introduced as a seemingly small addition to make the Germany’s economic stimulus package seem more specific in helping consumers and the automotive industry, the wrecking bonus has become a breathtaking success. It’s formula is very simple: anyone who buys a new car which meets EURO IV exhaust limits gets 2500€ from the government as long as the old car is not sold on but destroyed. The initial 1,5 billion € (enough for 600.000 cars) was quickly used up, and under the pressure of car owners, many of whom had already bought a new car and now faced uncertainty about whether they would receive the bonus – was extended to 5 billion € and until the end of 2009.

The wrecking bonus was clearly successful in some ways: 1.4 million Germans put in claims for the wrecking bonus so far. In the days after the online system for claims went online 200.000 to 300.000 claims a day reached the agency in charge of administering the wrecking bonus, crashing their website and forcing them to employ extra staff to deal with the backlog. The association of automotive producers’ figures show that car sales from January to April 2009 in Germany exceeded those of the year before by nearly 20 percent. Yet despite stimulating car sales, the wrecking bonus is not environmentally friendly, and looking at the opportunity cost of the money spent – the side-effects, and the hang-over that might follow from it, show how.

The question of how ‘green’ the wrecking bonus is has been discussed here before. While Sigmar Gabriel, minister for the environment, likes to call it ‘Umweltprämie’ (environmental bonus), producing new cars and wrecking old ones is energy and ressource intensive. Furthermore, there is no clear incentive in the wrecking bonus to buy environmentally friendly cars, as EURO IV is mandatory anyway and cars don’t have to fulfil more. It also does not create a greater incentive for those wrecking especially polluting vehicles and exchanging them for especially clean ones. Nevertheless, the wrecking bonus has led to a shift towards buying cheaper and (therefore) cleaner cars, creating the political paradox of leading to domestic producers of large cars (Mercedes, Audi, Porsche, BMW) not benefiting to the extent of foreign producers like Fiat, Dacia, and Toyota.

From an climate change point of view, the positive impacts of the wrecking bonus have nevertheless be weighted against other ways to spend the money. Here the wrecking bonus quickly looks environmentally much less attractive. 5 billion € could have gone a long way in other fields. In energy efficiency, development of electric cars, increasing the pace of renewable energy deployment this kind of money could have given a crucial push to an industry which is becoming more significant and has a clear mandate for future growth – unlike the automotive industry. Furthermore, no-one can empirically validate how much of the extra-spending on cars is unblocking delayed demand, and how much of it is merely pulling forwards car purchases which will now not be conducted in the years to come.

With regards to electric cars, the fallacy of the wrecking bonus possibly becomes clearest. The German government supports some field trials of electric cars in selected cities, as well as subsidising technology needed to make these cars ready for the market. By increasing these subsidies as well as creating buying incentives similar to that of the wrecking bonus exclusively for electric cars – as China, among others is considering – German companies could have benefited and Germany could have had the crucial first-mover-advantage in a field that will clearly be crucial in the decades to come. But, the money is spent, both by consumers and the government. Some of the 1.4 million Germans that bought a car in the first four months of this year might have considered buying an electric, hybrid, or other environmentally-friendly car next year. More would have done so given a significant government support in doing so. But that money is spent, and an opportunity missed.

The transport sector once again takes centre stage, as the European Environment Agency criticizes the green credentials of motor vehicles, freight transport and rail networks. Highlighting the need to shift investments in the current economic climate to more sustainable and energy efficient modes, Professor Jacqueline McGlade, EEA executive director, added that

“…trends in transport are pointing in the wrong direction and will continue to contribute to air pollution, rising emissions of greenhouse gas and many negative environmental impacts.”

Jaguar Land Rover has just received a £330m bailout from the European Investment Bank to safeguard its 15,000 jobs an make investments in low emission technologies. The loan, the repayment of which will be guaranteed by the British government, is for a research and development project on reducing emissions. Jaguar Land Rover has been seeking Government assistance for some time and has recently put its workforce on a four-day week to avoid job losses.

The UK government received renewed pleas for an industry bailout from the motoring industry this week. Lobby groups are hoping April’s budget will include a ‘scrappage scheme’ – where car owners are given a financial incentive of about £2,000 to swap their old vehicle for a new greener model.

Whilst no decision has been announced, it is believed the scheme, which increased sales by 40% in March, attracting half a million buyers when it was introduced in Germany; is being taken seriously by MPs.  Statistics showed yesterday that sales of cars in the UK have dropped almost a third year on year. However, environmental campaigners highlight that the transport sector has been slow to introduce more environmental vehicles, and said that the money could be better used to fund sustainable transport solutions. There was also a fear that funds could be diverted from existing budgets set aside by the government for investment in green technologies, such as the £400m earmarked in the pre-budget report for an “environmental transformation fund”, which supports the development of new low-carbon energy and energy efficiency technologies in the UK.

A new report, The State of Green Investing 2009, by Progressive Investor, a green investment newsletter, has increased confidence in green investments, backed by positive signs from the stock market. The US report adds that the green industry is “at the nexus of stimulus support by governments around the world”.

The G20 leaders standing for their

The G20 Summit in London has now concluded, with US President Obama filling the main press briefing room for an hour-long press session.  The main points of the summit for international and national climate policy are summarised below:

1. Overall: In the substantive elements of the summit outcomes there is little mention of climate change.  In the summary communiqué climate change is mentioned in the second-to-last and penultimate paragraphs only.  As Climatico’s Simon Billett asked UK Climate Change Secretary, Ed Miliband, there is little evidence that this summit has been more than an agreement to agree in later meetings.
2. Forestry: UK Climate Change Secretary, Ed Miliband, said that forestry was a fundamental element of the global climate programme.  Italy has agreed to hold specific discussions on it at the G8 in July 2009.  There was agreement from France, Australia, Italy, Germany, US on the need for a global forestry deal.  Forestry was a major point of discussion in the corridors between delegations.
3. USA Climate Policy: It remains unclear whether the Obama administration will require cuts from China and India for a ‘comprehensive’ COP15 deal.  Obama said that “further discussions” needed with China, and that the US recognises its role as leader of clean energy and tech for China and India.  Obama: “We need an interesting conversation on how to overcome this challenge… we need low carbon growth… a rapid deployment of technology across the world… the US needs to lead these countries into the low carbon energy future”.
4. Green Growth: The summit has done little to define green growth or encourage the use of best practice measures between G20 countries.  While para. 27 and 28 of the final communiqué do reaffirm the commitment to low carbon growth, the summit has done almost nothing to further definitions of what this might mean or how it should be achieved.

Geithner, Obama, and Brown

As expected, the global economy took center stage at the G20 Summit held yesterday in London. Amidst the world economic crisis, G20 leaders met to discuss and put forth a global plan for recovery. Included amongst the six pledges made by the leaders of the Group of Twenty was a pledge for a green and sustainable recovery. However, despite this pledge and the hopes of many demonstrators, the public, and officials, climate change and plans for a green recovery featured little in the day’s discussions.

Over the weekend, the official G20 communiqué leaked to the press and included only vague language on the topic of climate change. According to paragraphs 27 and 28 in the official communiqué:

27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.

28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.

The vague language of the communiqué led to speculation that a “green stimulus” package might be less than concrete. This sentiment continued in the days leading up to the Summit.

Therefore, the day began with slightly lowered expectations for the one-day summit. Much of the morning for reporters was spent researching, writing, and watching leaders get their pictures taken. Anticipation and excitement began to grow as delegates sat down for their plenary session in the morning. However, not until close to 2:00 PM did green issues appear on the agenda with a press conference held by the UK Climate Change Secretary, Ed Miliband.

In the early afternoon, Miliband surprised reporters with a short press conference to brief them on the progress of climate change discussions and answer questions. Miliband stated that he was confident that the G20 Summit would provide forward movement towards Copenhagen in December. The discussions would serve to facilitate the process toward Copenhagen and would be used to make a statement to China and other developing countries that the United States, UK, and EU countries were committed to tackling climate change.

Climatico’s Simon Billett asked Miliband whether this talk of “first steps” was anything more than “agreeing to agree?” In response, Miliband stated that while the G20 summit was “essentially an economic summit,” among the G20 participants existed the understanding of the “mainstreaming [of] the green message.” Furthermore, Miliband said that countries such as Saudi Arabia and Russia are more likely to attach importance to renewables despite prior hesitation. “This is a significant step in mainstreaming low carbon development in economic recovery…The notion of low-carbon as a way out of recession has gone from being marginal to being mainstream.”

Miliband went on to say that forestry is a fundamental element in the climate program and will be discussed in Italy at the G8 meeting in July. Billett noted that forestry proved a major topic of conversation within the corridors of the Summit. Furthermore, private discussions between German Chancellor Angela Merkel and Australian Prime Minister Kevin Rudd regarding the importance of including forestry in a global climate deal adds to the speculation that forestry will be a topic to watch in the months to come.

Despite Miliband’s press conference, the topic of climate change once again became quiet over much of the afternoon. During his speech, French President Nicholas Sarkozy failed to reference any discussion on the topic of the environment. And, despite Miliband’s enthusiasm, UK Prime Minister Gordon Brown only restated that the G20 was committed to meet again later this year to discuss a Post-Kyoto climate deal.

However, U.S. President Barack Obama brought climate change back onto the floor during his press conference late in the day. Obama’s trip to London included several bilateral meetings with the leaders in attendance outside of the context of the G20. In response to a reporter’s question from the Times of India, Obama addressed a bilateral meeting he had with Indian Prime Minister Manmohan Singh. Amongst other points of discussion, Obama and Singh touched on the issue of “energy and how important it is for the United States to lead by example in reducing our carbon footprint so that we can help to forge agreements with countries like China and India…for our efforts to control climate change.”

Obama alluded to future discussions on the topic of climate change with China. In addition, he recognized the challenges that lie ahead for the topic amidst the current economic crisis. “In some ways, our…European counterparts have moved more quickly than we have on this issue, but I think even the Europeans have recognized that it’s not easy. It’s even harder during times of economic downturn.” He went on to add, “We’re going to have to combine the low-hanging fruit of energy efficiency with rapid technological advances. And to the extent that in some cases we can get international cooperation and pool our scientific and technical knowledge around things like developing coal sequestration, for example, that can be extremely helpful.”

Obama’s speech wrapped up the events of the day. However, despite a long day of meetings and press conferences at the G20 Summit, action towards green growth remained largely undefined. As to be expected, the world economic crisis was the star of the show and, therefore, plans to repair the global economy held the spotlight. Yet, often this subject turned to the discussion of bank regulation and executive pay rather than outlining plans for green growth. Despite all of this, environmentalists can rest assured that the international dialogue on climate change has begun to move forward. Furthermore, as demonstrated in Obama’s press conference, the United States appears onboard for further discussions and acknowledges its role as a leader and partner in reaching a climate change deal come December. Between Obama’s acknowledgement that the US must lead by example and Miliband’s enthusiasm for momentum, hopefully the G20 will prove a success for environmentalists, after all, by bringing in greater participation, particularly by China and India, at Copenhagen later this year. We shall have to wait and see.

On March 5 2009 Climatico released its first assessment report of national climate policy across twelve of the G20 countries.

This, the first of four reports leading to COP-15 in December 2009, tracks progress in government climate policy between 1st November 2008 and 20th February 2009.  Through this tracking the report draws conclusions about general trends between national policies to understand how climate policy is developing in the major greenhouse gas-emitting countries.   This ‘overview’ is presented in an editorial in Chapter 1 of the report. The report also includes a special chapter on energy policy in China.

Some of the main findings of the report are:

• A significant funding gap is appearing for adaptation, as developing country lack domestic resources and capacity and also appear unable to rely on international transfer mechanisms to meet their financing needs.  It is at present unclear how adaptation will be effectively financed.
• The financial crisis is allowing a mainstreaming of climate change into recovery packages, accelerating otherwise difficult shifts to low carbon growth in developed countries. However, the same crisis is causing a major slow down in projects that do not contribute to financial recovery (see Box 2 on page 10).
• CDM project growth in Mexico and Indonesia is already slowing significantly compared to business projections for early 2009, with most Indonesian projects on hold.

The countries included in the report are: UK, EU, France, Germany, Canada, USA, Mexico, India, China, Indonesia, Japan, Australia.

For enquires please contact:

Simon Billett, Research Director  (simon.billett@climaticoanalysis.org)

Dan Lewer, Communications Director (dan.lewer@climaticoanalysis.org)

In the uncertain time when noone is quite sure whether their governments, politicians and parties will be more or less Obama-esque in their approach to solving climate change in a severe economic downturn. So a look back at some of the past months’ highlights in German climate change policy over the past few months:

1) Poznan, 0,5/1: No comment about the overall progress of a post-kyoto agreement, but Germany was not notable for heroic leading from the front. A subdued performance.

2) EU Climate agreement: 1,5/3) Germany agreed to auction all permits for emissions from energy production, kudos. But on permits for energy-intensive industry politicians faltered to industry pressure, and the renegotiation and eventual relaxation of the timeline for reducing fleet emissions a clear sign that there are worries about the German car industry.

3) The fiscal stimulus package: 1/3) Closer at home, last month’s fiscal stimulus package disappointed those that had hoped for a green new deal. Among others, the Green party is dissatisfied with the environmental aspects of the package, and, because of Germany’s finely balanced political landscape is now in a position to block the package’s passage through parliament by virtue of membership in Hamburg’s unique black-green coalitio, and threatening to do so.

Their grievances centre on a new CO² based car tax regime, after a first draft would have halved tax for the most polluting SUVs. With last minute changes the new regime will not change existing rates much, with exceptions for Diesel cars, with the Greens want to remove from the bill.

The second ‘green’ measure in the package is the ‘wrecking bonus’ paid to buyers of new cars when they’re old car is taken out of circulation instead of sold on. Either by design, or (more likely) unintentionally, the bonus has worked like a charm, but not, as hoped, by stimulating buyers to buy German cars (because those that can afford to will normally sell their car on for more of the bonus they would be paid for destrying it), but to import cheap, fuel-efficient cars, the biggest gainer being the Peugeout 307.

In general, the package contains little tageted investment for green measures. Construction work that will be done will conform to high environmental standards, and renovating public buildings will make the more energy efficient, but within the design of the package this seems more incidental, than at the forefront of politicians’ thinking.

4) Umweltgesetzbuch. 0/1?) On the surface, this seems like one of the awfully familiar spats between SPD and CSU about a piece of legislation. But beyond the bickering, this is more important, and an indication of the faultlines in the upcoming election campaign. The project to consolidate the byzantine mess of planning and environemntal regulation into one law, and therefore ensure that planning was as uncomplicated as possible, while making it easier to uphold environmental standards. In the last second, and after years of joined draftingbacked by Angela Merkel, the CSU pronounced it would not support the law without wide-raning changes essentually guaranteeing state autonomy on a wide range of policy, which was duly declined by Sigmar Gabriel, the environmet minister. The fact that the CSU chose to break with the SPD over this declared government intention, and the fact that Angela Merkel has so far declined to step in, the coming months might well show an increasig divergence on climate chane policy.

Sometimes, no news is good news. In a week in which Obama gave US states the ability to enforce tough new standards on car fuel efficiency and emissions, German policymakers managed a last minute turnaround to prevent doing the opposite. The audacity of claiming a shift to environmentally friendly car taxation, while preparing a tax model that would have more than halved taxation for the worst polluting SUVs, was breathtaking. Luckily some in Germany’s governing coalition, namely Sigmar Gabriel, minister for the environment, and Wolfgang Tiefensee, minister for transport, both SPD, must realised the impact this would have with voters, both those interested in climate change and those who questioned why they had to pay the same, while those driving 500hp SUV got a hefty discount. In the end a compromise was found, whose central characteristic is that it will mean every kind of car essentially paying what it is paying now. This was criticised by the LINKE party and environmental NGOs as a ‘wrong signal’ because it did not in fact raise taxation for more polluting vehicles. Yet, one could be forgiven, given recent experience with Germany’s Grand Coalition to give a sign of relief at the fact that things haven’t become even worse.

On a related note, this week brought out a few other interesting bits of information. DEKRA, an car testing association published a report showing that 92 percent of drivers are willing to change to an ‘Umweltauto’, even if it means a smaller range, worse driving performance, or shorter service intervals. Unfortunately, they didn’t ask how much more people were willing to pay…

Another report, this time written by Roland Berger, a consultancy, for the government of the state of Saxony, shows the economic potential of environmental technology. This industry grew by 17 percent in 2007, employs 18.000 people in Saxony alone, and already contributes 6 percent to the states GDP. And, encouragingly, even in the current economic climate the outlook of the companies asked remained positive. Adding to the good news, for the economy and the climate, was the association of energy and water utilities BDEW, stating that renewable energy covered more than 15 percent of total German electricity consumption. This means Germany is already fulfilling the EU renewable energy targets, and, given that much of the technology is produced in Germany, highlights the positive economic impacts courageous action on climate change can have.

Sigmar Gabriel, minister for the environment and former prime minister of lower Saxony, welcomed the second ‘Konjunkturpaket’ (stimulus package), as a chance for both job creation and the environment. Public investment would be subject to environmental guidelines, while changing car taxation to a CO² basis and paying car owners to get rid of old cars (or, rather, for buying new ones), would be a big step towards a more environmentally friendly fleet of cars. Two days after saying this (and after the package was passed), his ministry published a report showing that German companies were holding a large sharge of business in fast-growing environmental technology markets, and had already created 1,8 million ‘Umweltjobs’ (green jobs) in Germany.

Yet, while the growth of companies and jobs in green technologies is certainly encouraging, with regards to the stimulus package’s environmental impact, the reactions of commentators and interested parties was telling. The automotive and construction industries were positive to enthusiastic about the car tax holiday and the bonus to buy new cars. Environmenalists were not. A newspaper commentary reminded readers that Angela Merkel, in 1995 still as minister for the environment, had strongly opposed the idea of a bonus to buyers of new cars, and called the measure ‘ready for the scrap heap’. DHU and VCD, a environmental NGO and a left-leaning motring association, pointed out that most emissions are created when a car is manufactured, and that the bonus only creates an incentive when the value of an old car is below 2500€, this mainly being the case for cars which (because they are small) don’t emit most emissions anyway. Worse, they provide a model calculation showing that under the new car tax proposals (even though they will be based on CO² emissions), the most polluting cars will actually pay a lot less than before.

Those arguing that the measures aimed at the car industry are in fact only a small part of the stimulus package are right, but there is scant evidence of environmental measures elsewhere in it. While spending on infrastructure (such as modernising schools) will a positive impact on energy efficiency, this is accidental rather than reflecting conscious design. The same holds true for much of the package. Even if the car stimuli have (which seems doubtful) a positive environmental impact, they are designed to shore up manufacturing jobs. And the draught of measures stimulating those green industries that have already created 1,8 million jobs in Germany is disappointing, but also suggests that in a time of crisis, most German politics are scared to believe their own rhetoric.

It is too early to predict how German politics and the environment will ‘get on’ in 2009. Yet, this year will be an important crossroads in showing whether Germany will remain a leader in dealing with environmental issues, including climate change, or not. With a number of state elections, as well as a national, and a European one, election campaigning will have a defining influence on the politicians and policies governing Germany in the coming years, yet so far the signs are not promising.

For the time being, the defining issue in German politics is the second economic stimulus package, agreed upon in principle, and to be passed by the coalition government soon. CDU and SPD have outlined their plans for what it should look like, and from an environmental point of view, it seems likely to disappoint.

It seems likely the emphasis will be on broad-ranging tax-cuts, while government investment will be focused on infrastructure, yet likely to encompass road construction as well as investment in energy savings. The SPD, specifically, suggests using part of a suggested state fund to invest in energy savings in public buildings, as well as a more efficient and environmentally friendly energy grid. Controversially, they also want to encourage consumers to buy more environmentally friendly cars through paying them a bonus for getting rid of their old car, a measure derided by Greenpeace and others as an expensive and environmentally harmful subsidy in disguise to the automotive industry.

The CDU puts a stronger focus than the SPD broad tax cuts, likely to not have a significant positive influence on the environment. Nevertheless, they propose to bring forward a change in car taxation, to make it dependant on a car’s CO² emissions, a measure with a potentially large positive impact on CO² emissions. Furthermore, they also want to invest in energy savings in buildings, yet have not yet specified how they would accomplish this. It’ll be worth watching the upcoming intra-coalition negotiations on the stimulus package to see what happens to these limited environmental measures.

Overall, in trying to stimulate consumption through broad tax cuts, the coming year might disappoint those who had been hoping for a more focused effort on renewable energy, CO² emissions reductions, and job creation in green industries.

If one had been hoping for clear signs of progress a week-and-a-half into Poznan and on the eve of a European Council meeting, where an ambitious EU climate agenda should have been finalised, this has not been the best week. German enthusiasm for action on Climate Changed has not only waned with the onset of the financial crisis, but, more or less, disappeared completely.

In parliament last week, Angela Merkel reasserted the EU’s ambition to push for an international agreement on Climate Change. She also defended the ‘compromise’ on car emissions as reflecting the need to secure jobs as well as CO² reduction and climate change. Not only did the Greens heckle in response to this assessment, but since then different observers have questioned the purity of Ms Merkel’s intentions.

NGOs ‘Brot für die Welt’ and EED accused her of ‘forgetting about’ the EU action on Climate Change she had herself initiated. In a joint letter, Christian leaders from the UK, Germany and Sweden warned of neglecting action on Climate Change because of the financial crisis. And Klaus Töpfer, a prominent former environment minister and head of UNEP, warned that commitments to tackle Climate Change should be questioned by no-one, least of all Ms Merkel.

Leaders looking for answers

For the moment it seems that, barring a political miracle, the results of the EU Council meeting and Poznan will not meet the expectations of better times. Germany is likely to push for further exceptions to the auctioning of CO² permits for energy intensive industries, such as steelmaking, cement, and aluminium, leading to the Spiegel’s mourning Angela Merkel’s transformation from ‘Miss World’ to ‘Madame No’.

Not much space seems left for the argument Obama and an earlier Merkel have made, namely that action on Climate Change will create, rather than destroy jobs. Bärbel Höhn, the Greens’ environmental spokesperson does, saying that ‘Merkel makes a serious mistake in not seeing the economic potential of Climate Change, and endangers jobs and industries by serving short-term lobby interests.’ The recent German ‘transformation’ does not bode well for action on Climate Change, and that might turn out to be an economic, as well as an environmental, policy error.