Renewable Energy: , vs. Los Angeles, California

By: Caroline Chavos, Julian Cordon, Ashley Leroi, Hannah Newkirk and Ryan Steffens

December 17, 2020

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Table of Contents

Executive Summary 3

The Industry 4 Market Drivers 5 Growth Rates & Patterns 5 Future Trends 6 Economic Dynamics 6 Cost Structure 7

Energiewende 7

Paris Climate Agreement 8

Germany Steps Down as the International Climate Champions 9 Germany and US Policies in Renewable Energy 10 Environmental Taxes 11

Climates 122 and Solar Panels 12 Challenges within the Photovoltaic Sector 13

Energy Consumption by Country 14

Case Study: Germany at the Forefront 17

Recommendations 20

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Executive Summary

This paper will discuss the similarities and differences of the renewable energy industry in the cities of Bonn, Germany, and Los Angeles, California. Bonn has been a global leader in the fight against climate change but their high ranking has been compromised. This report discusses the reasons for this negative shift and delves into the positive impacts in the overall renewable energy trend that Germany has made. Bonn is compared to Los Angeles, one of the lower-ranked cities when it comes to the topic of climate change, due to the pollution and nonrenewable energy the city uses. Recommendations are made for each city based on the research conducted.

Topics that will be discussed in this paper include:

• Analysis of the renewable energy industry • Germany’s Engeriewende policy • The Paris Climate Agreement & criticism of Germany • Differences and similarities in energy policies between the United States and Germany • Climates of each country • Energy consumption by country (Germany vs. USA) • Case study analysis on Germany

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The Renewable Energy Industry

Industry Size

The renewable energy industry is a booming industry sector that is projected to grow enormously over the next few years. The industry is currently worth over $920 billion and is expected to reach a staggering $1.5 trillion dollar value by the year 2025 with a compound annual growth rate of 6.1% from 2018 to 2025.1 Leaders in the industry include: ABB Ltd., General Electric, Tata Power, Innergex, Enel Spa, Xcel Energy, EDF Energy, Geronimo Energy, Invernergy and ACCIONA.2 Country leaders in the renewable energy industry include: , Costa Rica, Nicaragua, Scotland, Germany, Uruguay, , China, Morocco, the United States and Kenya.3

Exhibit 1: Total renewable energy consumption (TWh) around the world.4

1 (PR Newswire 2020) 2 Ibid. 3 (Climate Council 2019) 4 (Ritchie and Roser 2017)

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Market Drivers The key market drivers in the industry that compel consumers into switching to renewable energies in newly built multi-family homes include favorable tax benefits, lower interest rates, working from home online, positive and persuasive advertising, demographic factors and a demand for greener household amenities.5 For new buildings being built around the world, the architects, contractors, engineers and local municipality codes drive many new buildings to be built with renewable energy features.6 Existing homes or buildings that are retrofitted with new renewable energy technologies are another major sector that has significant market drivers in the industry with home and building owners, appraisers, capital providers, tenants, contractors, HVAC installers, energy service providers, federal government standards and local codes all favoring renewable energy upgrades for homes and buildings.7

Exhibit 2: Key Market Drivers in the Renewable Energy Industry8

Growth Rates and Patterns The renewable energy sector saw a significant increase in demand from most market segments as overall consumer sentiment remained positive. Additionally, renewable energy consumption by residential and commercial customers increased by six percent.9 Since its decline in 2012-2013, global investment in renewable energy has rebounded to an all-time record of USD 286 billion in 2015 with a shift in geographic focus towards Asia. The

5 (Arent et al. 2006) 6 Ibid. 7 Ibid. 8 Ibid. 9 (Motyka 2020)

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growth investment flow has been sustained by an evolution in financing models and financial stakeholders for renewable electricity projects coupled with significant policy support for renewable energy.10

Future Trends In 2020, companies in the renewable energy industry should be mindful of a few caveats that could impact renewable energy growth. Under current policy, eligibility for the Production Tax Credit for new wind build expires and the solar Investment Tax Credit step down starts in 2020, both of which have been key drivers for wind and solar growth in the U.S. renewable energy market.11

Economic Dynamics The average capital return period for investment on solar plants is estimated at about 2-5 years.12 Considering that solar panels have an average life of 25 years, investors are guaranteed to make reasonable profits. Moreover, while generating each kWh of costs between 7-12 cents, it is sold at 15 cents. This allows for a profit margin of 25% - 110% percent. In the United States, the solar industry has experienced an average annual growth rate of 49% alone, generating USD18.7 billion of investment in the American economy.13 In Germany, solar power has become the cheapest mode of power generation in the country according to research institute Fraunhofer ISE.14 Depending on the type of installation and the sun's intensity, generating one kilowatt hour (kWh) with solar panels can cost no more than 3.7 euro cents.15 Costs for equipment and installation, the biggest factor for investors, fell by 75% between 2006 and 2017.16 An analysis by Sandbag, a British climate non-governmental organization, found that costs fell so much that new solar (and ) installations in German auctions are not only cheaper than new hard coal and gas plants but also undercut the operation costs of existing fossil power plants.17 In future projections, the German government forecasts that green power will make up about 80% of the electricity mix by 2038 compared with just over 40% in 2019.18

10 (OECD Business and Finance Outlook 2016) 11 (Motyka 2020) 12 (Böhringer, Landis, and Tovar Reaños 2017) 13 Ibid. 14 (Wirth 2020) 15 (Wehrmann 2020) 16 Ibid. 17 Ibid. 18 Ibid.

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Cost Structure The levelized cost of energy (LCOE) in Germany for a photovoltaic power plant is the ratio between the total costs of the plant (€) and its total electricity production (kWh) over its economic lifetime. The LCOE for photovoltaic power plants is primarily based on these factors19:

1. Purchasing investments to construct and install the plant 2. Financing conditions (such as the return on investment, interest and plant lifetime) 3. Operating costs over the lifetime of the plant (such as insurance, maintenance and repairs) 4. Irradiance availability (the flux of radiant energy per unit area) 5. Lifetime and the annual degradation of the power plants

These costs have fallen by an average of 13% each year and have fallen 75% overall since 2006. Additionally, module costs are responsible for almost half of the total investment costs of a photovoltaic power plant of this size.

Energiewende Back in 2019, Germany was the largest energy consumer in Europe. Due to the fact that Germany is a large consumer when it comes to energy, they have begun a long-term initiative to transition into low-carbon and a more effective energy mix. This is called Energiewende. This can be translated into English as “energy transition” and refers to “Germany’s policy of increasing the share of renewables and phasing out .”20 This concept is based off “energiekonzept” policy, which was published in 2010, in addition to the Renewable Energy Source Act (Erneuerbare Energien Gestez, EEG) which was passed in 2000 and it takes into consideration all the energy, but the main focus is on electricity.

“The Energiewende policy includes: greenhouse gas reductions of 40% by 2020 and 80- 95% by 2050 relative to 1990; a fall in primary energy consumption by 20% to 2020 and 50% to 2050, a renewable energy target (including biomass) of 60% by 2050; and the shutdown of the country’s nuclear reactors, even though they are the main source of carbon-free electricity. Electricity is to be 40-45% renewables by 2025, 55-60% by 2035 and at least 80% from renewables by 2050, “which requires new solutions to provide ancillary services” according to German Energy Agency (Deutsche Energie-Agentur, DENA). It also requires a major increase in energy efficiency: compared with 2008,

19 (Wirth 2020, 7-8) 20 (World Nuclear Association 2020)

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electricity consumption is intended to be 10% lower by 2020 and 25% lower by 2050. However by 2015 it was only 3% lower.”21

At this point in time, Energiewende is currently in phase two and includes ambitious targets for phasing out coal and nuclear and developing renewable energy. Concurrently, Germany has some of the lowest wholesale electricity prices in Europe, but on the contrary has some of the highest retail prices due to the policies put in place by Energiewende. With that being said, taxes and surcharges account for more than half of the domestic electricity price. Another aspect to consider is the fact that because Germany was the first mover in this industry it has been incredibly expensive. However it has transformed the German energy system in just a decade and a half, “ensuring that it is a rising industry, taking over from coal and residual fossil fuels as well as nuclear.”22 A criticism that Energiewende has received is the fact that there is still a large amount of coal that continues to burn. What would cause a change is a carbon tax. It would force “the pace of a switch to electric vehicles in transport and away from coal in energy-intensive industry… if a carbon tax could be made politically acceptable in Germany.”23 With all this in mind, even though Germany still uses a large amount of coal, Germany produces more wind, solar and renewable resources than any other major country in the world. Ultimately Germany has seen benefits after implementing Energiewende; not only the expansion of renewable energies, but to curb climate change. This nation is seeing benefits on the economy as a whole as well as continuing to keep Germany the fourth largest economy by not shunning away from the ambitious goals of Energiewende.

Paris Climate Agreement The Paris Climate Agreement’s aim is to strengthen the global response to the threat of climate change, specifically by keeping the global temperature rise to 1.5 degrees celsius this century. All of the 196 parties are held under nonbinding commitments to create a nationally determined contribution (NDC), which are basically their post-2020 climate actions24. Germany is one of the parties of the Paris Climate Agreement, but has failed to reach the goals it has created in both its NDC and the overall climate goals of the agreement. The German government’s Climate Action Programme 2030 does not contain enough attainable policy measures to meet its own targets. This is exemplified in the fact that their coal phase-out date of 2038 is a decade slower than the objectives of the Paris Climate Agreement. Despite the success of renewables “coal continues to account for a high share in the electricity mix, with 40% higher

21 (World Nuclear Association 2020) 22 (Matthews 2017) 23 Ibid. 24 (“The Paris Agreement” 2020)

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than the EU or global average.”25 The new government is said to take more steps backward than forward. The productive aims include increasing the renewable electricity target and creating a Climate Protection Act (legally binding). Yet Germany is still not reaching their 2020 climate target on time. In fact, greenhouse gas emissions have been stable since 2009.26 It is ironic that Germany was originally a pioneer for the agreement due to its outstanding role in international climate diplomacy, but its individual climate actions have been weakened over time. Their Renewable Energy Act added a cap on the expansion of renewable energy.27 Germany not meeting the goals of the Paris Climate Agreement can have a larger impact on other countries. If the country that made the agreement possible does not reach the goal of reducing climate change, then who will? The agreement is also based on mutual trust that all the parties will fulfill their voluntary commitments. The climate action tracker currently rates Germany as highly insufficient, meaning their NDCs are in line with raising the global temperature to 3-4 degrees.28 Germany’s wind and solar energies have been the reason they are one of the leaders in renewable energy, yet wind and solar have slowed down due to the environment, leaving the industry at risk. Although Germany does not hold its role as the international climate champion, the country is still pursuing decreases in natural gas emissions and trying to reach the Paris Climate Agreement goals. This is contrary to the United States who has recently left the agreement. The United States initially proposed to reduce their emissions about 28% by 2025, but this was halted under the Trump administration.29 Due to the agreement being nonbinding, there are no consequences for either not meeting the goal or even leaving the agreement altogether. The United States is not on the path of reducing emissions, but it is still in the United Nations Framework Convention on Climate Change, so it is still involved in fighting climate change.

Germany Steps Down as the International Climate Champions

For many years Germany was the “golden calf” when it came to the international climate. However Germany no longer holds the title of the International Climate Champions for a variety of reasons. One aspect that has forced Germany to step down is its outstanding role in international climate diplomacy.30 Germany’s “coalition agreement fails to provide new ideas for tackling greenhouse emissions in industry and buildings, and proposed measures in transport are insufficient to initiate the necessary transition.”31 This does not fall in line with the Paris Climate

25 (Höhne 2018) 26 (Höhne 2018) 27 Ibid. 28 (“Germany” 2020) 29 (“As of Now, the U.S. Is Officially Out of the Paris Climate Agreement” 2020) 30 (Höhne 2018) 31 Ibid.

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Agreement. The coalition agreement, which has a specific agreement to pass a climate protection law, as well as a date that will be agreed upon to phase out coal with the hopes of expanding renewable energy in a quicker manner, is not enough to offset the lack of meeting the 2020 climate target goal, thus falling out of compliance with the Paris Climate Agreement.

Germany and U.S. Policies in Renewable Energy Germany is a climate-policy success story, but is a mixture of relative successes and failures. Germany has reduced its emissions of greenhouse gases more than almost any other industrialized democracy and exceeded its Kyoto commitment in 2012.32 This is in contrast to the United States who had improvements in energy efficiency but is still a main contributor to climate change. Germany’s improvement of a reduction of 26% stands out when compared to the increases of 7% in the United States. Since the early 1990s, Germany has been ambitious in its reduction targets with pioneering climate policies and strong advocacy for international climate agreements. Germany’s greenhouse gas emissions fell by 23 percent from 1990 to 2010 and they have a new goal of reduction for 2020 emissions.33 Early and consistent targeting is Germany’s approach, while the United States’s environmental laws and policies largely deal with pollution after it happened. Since the 1990s, the traditional means of making environmental policy— notably, congressional action—have largely stalled in the United States.34 Germany still has much room for improvement though because Germany’s per capita emissions have not been adequate to avoid contributing to major damage to the climate system. The policies that were deemed effective for Germany were the economic structuring of Eastern states, promotion of renewable energy, and regulation of methane and nitrous oxide. While tax reform and industry agreements (policies promoted by the government) were not.35 Some specific policies include the Electricity Feed-in Act, nuclear phase out, and increasing taxes on energy while reducing employers’ social security contributions by about 0.8 percent. While the United States started with the Water Pollution and Air Pollution Control Acts, the passage of the National Environmental Policy Act (NEPA) has taken over most environmental policy. NEPA is largely a procedural environmental law that requires any federal executive agency to review how proposed agency action may impact the environment.36 The main difference between Germany and the US’s environmental policies is that Germany has been consistent across political leaders, while the United States has removed itself and reintegrated itself in international efforts at environmental production depending on the presidency. Due to Germany being the former international climate champion and the United States still struggling, it is essential to compare

32 (Karapin 2012) 33 Ibid. 34 (Rinfret and Pautz 2019) 35 (Karapin 2012) 36 (Rinfret and Pautz 2019)

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their dynamics in renewable energy to determine if it is policies, climate, or another practice that explains the environmental difference.

Environmental Taxes The United States and Germany are both under the average of 2% of GDP in environmentally related tax revenues as Germany sat at 1.95% and the U.S. at 0.9% in 2014.37 There is clearly a large difference in the amount of environmental taxes for these countries. The environmental tax revenue as a share of gross domestic product was lower for the United States than for all but one other country (Mexico). It is also second to Germany in all types of taxes like the carbon tax for roads (43.5 compared to 216.1 in 2018).38 Although Germany’s taxes are below average based on their GDP, their taxes on energy represented 83% of total environmentally related tax revenue, compared to 70% on average among the 39 countries. The country also charges more for energy use, thus 84% of CO2 emissions from energy use are taxed.39 Germany stands apart from the U.S. in its implementation of the European Union’s ETS: the world’s first major carbon market. It is part of the EU’s mission to combat climate change with the majority of the taxes going toward domestic renewable energy products. The majority of environmental tax comes from motor fuels in the United States, accounting for approximately $70 billion in 2005, but the rate has remained stagnant. Policymakers and environmental advocates have proposed that both countries implement a carbon tax to receive more money that could be accounted for fixing the former negative consequences of the industry and to combat climate change.

Exhibit 3: Environmentally related tax revenue as a percentage of GDP, 2014.40

37 (“Environmentally Related Taxes”) 38 (Metcalf 2009) 39 (“Environmentally Related Taxes”) 40 (“Environmentally Related Taxes”, n.d.)

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Climates Renewable energy, as defined by the U.S Energy Information Administration (EIA) is “Energy from sources that are naturally replenished but flow limited; renewable sources are virtually inexhaustible in duration but limited in the amount of energy that is available per unit of time.”41 There are seven types/sources of renewable energy: hydroelectric, wind, geothermal, ocean, hydrogen, biomass, and solar. Hydroelectric energy is the creation of energy by harnessing the power of water in motion, for example, the flow of water over a waterfall. Wind energy or power is the, “process of creating electricity using the wind, or air flows that occur naturally in the earth’s atmosphere” (American Wind Association, n.d.). Geothermal energy is the energy obtained from the earth's core. It comes from the heat produced during the development of the planet and the deterioration of radioactive materials.42 Ocean energy is generated from the motion of the ocean’s currents, tides, and waves. For hydrogen, it's important to note that it is not an energy source but an energy carrier. Sunita Satypal, director of EERE's Hydrogen and Fuel Cell Technologies Office, explains that, “Hydrogen is the simplest and most abundant element on earth—it consists of only one proton and one electron. Hydrogen can store and deliver usable energy, but it doesn't typically exist by itself in nature and must be produced from compounds that contain it.”43 Biomass energy encompasses all the energy generated by living or non-living organisms. For it to be considered a renewable energy source, the organism from which the energy is being derived has to be replaced at the same rate it is consumed. is the electromagnetic energy transmitted from the sun.44 It is harnessed through the use of different technologies, the most common one is photovoltaics (PV). A photovoltaic device generates electricity directly from sunlight via an electronic process that occurs naturally in certain types of material, called semiconductors. Electrons in these materials are freed by solar energy and can be induced to travel through an electrical circuit, powering electrical devices or sending electricity to the grid.45

Photovoltaics and Solar Panels An aspect worth taking a deeper look into is solar energy, which has become one of the most well-known renewable energy practices in both the United States, specifically in Los Angeles, and in Bonn Germany. Photovoltaics which was stated previously above is one of the most common types of solar power but not limited to. Solar thermal is another aspect when talking about solar energy, it “use[es] the concentrated heat of the sunlight to heat a fluid to make steam to turn a traditional turbine and generator making electricity.”46

41 (U.S Energy Information Administration, n.d.) 42 (The Welding Institute, n.d.) 43 (Satypal 2017) 44 (Office of Energy Efficiency & Renewable Energy, n.d.) 45 (Solar Energy Industry Association, n.d.) 46 (“California Solar Energy Statistics and Data” 2019)

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In Los Angeles alone, in 2019 the county produced 2,630,700 net MWh47 strictly from solar panels.48 It is interesting to look at Germany, a country who only gets sunlight two-thirds out of the day, to be one of the leading countries in solar energy. To put that into numbers Germany sees about 1,600 hours of sunshine per year.49 Germany had a long history of coal mining and yet “a combination of canny regulation and widespread public support for renewables have made Germany an unlikely leader in the global-power movement.”50 This ultimately created a small scale of “power generation that could upend the dominance of traditional power companies”51 which it has indeed done. Back in 1991 when the Erneuerbare Engergien Gestez, or the renewable energy law was passed, solar energy and its infrastructure might have well been considered gold, “producing electricity from sunlight costs 10 times more than generating power using coal or nuclear energy.”52 The EEG suffered an immense amount of backlash however investors began to approach solar and wind energy as long term investments “knowing there was a guaranteed future for renewable energy.”53 Going back to the sun exposure in Germany, because they have implemented a large grid system which captures the sunlight and turns it into energy, they are able to store it for long periods of time. It is as if when it is sunny Germany has a vault that they can keep all the stored energy in, hence not needing it to be sunny year round compared to Los Angeles, California. To put into perspective the capability of these grids that Germany has in place, “on a sunny day...Germany produced 22 gigwatts of energy from the sun- half the world's total and the equivalent of 20 nuclear power plants.”54 Since Germany has been a trailblazer in the , they have been able to capitalize when it is sunny, based off of their immense amount of infrastructure dedicated to renewable resources such as solar energy. While Los Angeles may have sunshine three-hundred and sixty days out of the year, where it ultimately lacks compared to Germany is an advanced grid system.

Challenges within the Photovoltaic Sector There are a few challenges within the photovoltaic sector, however a main one worth focusing on is how installing solar panels has created more jobs in Asia in recent years rather than Germany. There are four major business sectors that contribute to the German photovoltaic industry:

1. “Manufacture of materials: solar silicon, metal pastes, bus bars, plastic films, solar gals, coated glass.

47 MWh or a megawatt-hour is a unit of measure of electric energy. A singular MWh is 1,000 kilowatt-hours. 48 (“California Solar Energy Statistics and Data” 2019) 49 (McHugh 2015) 50 (Curry 2013) 51 Ibid. 52 Ibid. 53 Ibid. 54 (Curry 2013)

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2. Manufacture of intermediate and final products: modules, cables, inverters, mounting structures, tracker systems. 3. Mechanical engineering for cell and module production. 4. Installation (especially trade).”55

Based on this information it can be concluded that Germany was focused on vertical expansion. With all that being said, in the past few years many German companies have gone out of business due to insolvency, which has affected all the four major business sectors that contribute to this industry. Back in 2007 “the plan that the combination of EEG, investments grants in the (new) eastern and research support would help establish Germany as a worldwide leading production site for PV cells and modules appeared to work.”56 However since 2007 there has been a decrease in the market share of German manufacturers because of the immense amount of money pumped through Asia in this area. A major player in this aspect is the labor costs in the production of photovoltaic because today it can now be heavily automated. Looking at feed-in tariffs in Germany and other European countries, it has propelled massive investments in photovoltaic power plants.

“Alone in Germany, these amounted to investments of 90 billion euros through to 2014. In these countries, however, the economic- political framework is missing from generating investments in production capacity within a competitive gigawatt scale. Rather, China and other Asian countries have succeeded through the creation of attractive conditions for investments and credit to mobilize four billion euro investment capital from national and international sources for the construction of large-scale production lines.”57

In spite of the high number of photovoltaic imports, there is still a large portion within photovoltaics that remain in Germany. There are a few different reasons as to why Germany could potentially stay on top in terms of photovoltaics compared to China. One being the increasing freight cost and second being the delivery times. Due to these two major reasons, it shall improve the competitive advantage in terms of manufacturing when it comes to Germany.

Energy Consumption by Country The United States energy sources can be divided into five categories which are: fossil fuels, primary and secondary energy sources, and renewable and non renewable energy sources. Primary energy sources include fossil fuels, nuclear energy, and renewable energy sources. In 2019, the U.S primary energy consumption was around 100.2 quadrillion British thermal units

55 (Wirth 2020, 25) 56 Ibid. 57 Ibid.

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(Btu), a measurement of heat energy used to compare different types of energy.58 Petroleum accounted for 37% of the U.S. primary energy source, making it the most consumed source. Following petroleum was natural gas with a total consumption of 32%. Both coal and renewable energy had a consumption of 11% each. That specific 11% of renewable energy was made up of 43% in biomass, 24% in wind energy, 22% in hydroelectric energy, 9% in solar energy, and 2% in geothermal energy/power. The remaining 8% came from nuclear electric power. This data demonstrates that 80% of the United States’ energy consumption for 2019 came from fossil fuels. Although the country's dependency on fossil fuels is still relatively high, it has decreased by 14% since 1966. As of 2020, the EIA expects that electricity generation from renewable energy sources will rise to 20% and to 22% by 2021.59 This increase in renewable energy share is a result from the “planned additions to wind and solar generating capacity.”60 At the same time, the EIA expects that the U.S. electric power sector will add 23.2 gigawatts (GW) of new wind capacity in 2020 and 7.9 GW of new capacity in 2021, the utility-scale solar capacity is expected to rise by 12.8 GW in 2020 and by 13.0 GW in 2021.61 This information demonstrates that the U.S government is working on reducing its impact on the environment by investing on increasing its renewable energy production capacity.

Exhibit 4: U.S primary energy consumption by energy source, 2019.62

Germany's 2019 energy consumption is composed of seven sources, these sources are all measured in petajoules (PJ). One petajoule is105(1 million billion), or 278 gigawatt hours.63 In

58 (U.S Energy Information Administration, n.d.) 59 (U.S Energy Information Administration 2020) 60 Ibid. 61 Ibid. 62 (U.S Energy Information Administration, n.d.) 63 (Australian Government, n.d.)

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2019 alone, Germany consumed 12,238 PJ.64 The number one most consumed energy source in 2019 for Germany was oil which accounted for 35.3% of its total consumption. Oil was followed by natural gases which had a consumption of 24.9%. Following natural gases was renewable energy with 14.8%. The renewable source is composed of biomass with 7.6%, wind power with 3.5%, solar energy with 1.6%, hydropower with 0.6%, and geothermal & heat pumps with 0.5%, 1% was considered to be waste. Lignite, a type of coal came after renewable sources with 9.1%. Coal had a consumption of 8.8%. Nuclear power was the lowest consumed source of energy, accounting for only 6.4%. Germany’s last energy source was others/export balance with a small 0.7%. Such data demonstrates that non-renewable energy sources make up around 84.5% of Germany’s energy consumption. Although a relative high number, the first quarter of 2020 tells a different story for Germany. Between January and March, Germany was able to produce more than half of its electricity with renewable power. The numbers were driven by record wind power production in February, unusually high solar production in March, and a dip in overall energy use tied to the coronavirus crisis.65 At the same time, these numbers have placed Germany back on track to achieve its 2020 target for increasing renewables’ share of total energy consumption.66

Exhibit 5: German energy mix 2019: Energy source’s share in primary energy consumption.67

Comparing the United States 2019 energy consumption to Germany's 2019 energy consumption, Germany had a lower energy consumption in oil with 35.3% compared to the U.S

64 (Appunn, Hass, and Wettengel 2020) 65 (Waldholz 2020) 66 Ibid. 67 (Appunn, Hass, and Wettengel 2020)

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37%. For natural gases, Germany had a consumption of 24.9% and the U.S. a consumption of 32%. In coal consumption the U.S. consumed 11% lower to Germany’s consumption of 17.9% (sum of hard coal 8.8% and lignite 9.1%). Germany used more renewable energy in 2019 with a 14.8% while the U.S. consumed 11%. As for nuclear power, the U.S. consumed 8% and Germany only consumed 6.4%. When it comes to overall energy consumption in 2019, the U.S. had a total consumption of 2,213 Million Tonnes of Oil Equivalent (Mtoe), a number much greater than Germany’s consumption of 296 Mtoe.68 If we look at it from a per capita consumption perspective, a U.S. citizen consumed an average of 79,897 kWh in 2019, while the average energy consumption of a German citizen was around 43,703 kWh.69 The difference in energy consumption between the two countries is influenced by various factors. In an article titled, Factors Influencing Energy Consumption in the Context of Sustainable Development they state that greenhouse gas emissions, gross domestic product, population and labor growth have a positive relationship with both primary and final energy consumption, which means an increase of energy consumption.70 While feminine population increase, healthcare expenditures or energy taxes have a negative relationship with determining the reduction of energy consumption.71 For example in 2019 the U.S. economy had a GDP growth of 2.9%, while Germany had a GDP growth of 0.6%, which is one of the many factors that contributed to the significant difference between the energy consumption of both countries.

Case Study: Germany at the Forefront As discussed, Germany has done a fair job remaining one of the world’s higher leaders in the fight to conserve energy and end climate change. Over the last decade, Germany has made many changes to their economics surrounding environmental issues, and they made a large leap to conserve energy specifically, and to use renewable energy. In 2000, “Germany produced 6.4% of its power from renewables” and in 2011, increased this number by a little over four times the amount from 2000.72 Germany was also able to simultaneously reduce their overall energy consumption by 7.3%, as well as “[increase] the volume of its exports by 40%.”73

68 (Enerdata, n.d.) 69 (Ritchie and Roser 2015) 70 (Zaharia et al. 2019, 2) 71 Ibid. 72 (Simpson, n.d., 1) 73 Ibid.

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Exhibit 5: Germany’s Renewable Build Out 1990-2010, Image Source: German Environmental Industry

The goal of the German government was to raise the amount of renewable energy used by another 15%, equaling 35% by 2020. In addition, they wanted to reduce overall energy consumption by 20% by the same deadline. According to the case study, Germany has been so persistent in leading the world-wide renewable energy wave due to the fact that they have extremely limited access to oil and gas. Germany “has to import approximately 60% of its energy needs.”74 Because of the high amount of resources they have to import, it is seen as a risk to not only the environment, but to Germany’s economy as well. Their exports require extremely high amounts of energy and resources to manufacture and distribute, so it is critical for Germany to make the necessary changes in order to create and distribute in an economically efficient and environmentally friendly way. The government has been able to make these changes through legislation and enforcing regulations, and in 2011 “[they] were able to pass 8 new pieces of legislation.”75 Of these, one of the most notable implemented feed-in tariffs. A feed-in tariff is “a policy tool designed to promote investment in renewable energy sources” and is often used to incentivize companies and governments to use specifically solar or wind energy by promising an “above- market price for what they deliver to the grid.”76 Germany made the decision to shut down all of its nuclear power stations in 2011, and the rest of the world was “shock[ed]” and in “disbelief,” but it should not have been much of a surprise considering their active policy changes and their continuous strides to contribute to energy preservation and reverse climate change.77 Germany had the desire to implement this

74 (Simpson, n.d., 2) 75 Ibid. 76 (Kenton 2020) 77 Ibid.

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change since the mid-90s, but they did not have the means to do so because of the lack of access to alternative energy at the time. Feed-in tariffs, or “FiTs,” have proven to be extremely successful in the contribution of Germany’s goal to go green. They “have brought forward a new class of investors to promote the growth of renewable energy,” whereas grants and tax incentives have been unsuccessful because they are unable to generate those hefty financial returns that companies seek.78 A German company, E-On, has built renewable assets in the U.K. as well as in Germany because the U.K. has higher tax returns on projects that are classified as “renewable.” This is likely due to the fact that there is less of an expectation to use renewable energy in the , therefore the incentive to do so is higher since it is not considered the norm. Nowadays in Germany, it is expected that companies will choose the renewable energy route due to all of the policies and legislation that has been passed to cut down the use of non-renewables, thus they are not rewarded for something that they should be doing anyway. The positives to consider regarding the building of renewable infrastructure and other assets include the fact that there is promotion of renewable energy outside of Germany by Germany, and that this could lead to other companies in the U.K. to follow suit, especially since the tax returns in doing so are quite high. The two most reliable sources of renewable that are used both within Germany’s assets and infrastructure, and exported out are solar and wind. The German “power prices… have fallen to a five year low, thanks mainly to ramping up the renewable energy capacity” and they have been able to remain the highest exporters of renewable energy across the EU.79

Exhibit 6: Renewables in the German energy mix - Solar and Wind.

78 (Simpson, n.d., 3) 79 Ibid.

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Power prices within surrounding countries, such as Poland and France, have fallen as a result of Germany’s price plummet. Germany has also started to fall lower in their ranking based on how much renewable energy they produce, and because of this they rely heavily on the importation of clean energy from nearby countries.80 Germany has been a model of possibility in the renewable energy world, and they were able to encourage other countries to take note and make some changes. They were able to maintain one of the highest rankings as the international climate champion, and although they have fallen short of their standard within the past few years, they were still able to continue to set trends and new expectations for government and business impact on the environment.

Recommendations Since the renewable energy industry is booming, it is only rational for countries to decrease their carbon emissions. Although Germany has been a pioneer in renewable energy for the last couple decades, it still has a ways to go along with the United States in reaching the Paris Climate Agreement goal of 2025 since the 2020 goal was not met. Germany’s government needs to be proactive in their plans of reducing climate change, increase their environmental taxes to at least the global average, and continue implementing policies that have worked, specifically Energiewende. As there is still a large amount of coal burning, the implementation of a carbon tax would decrease emissions and increase the economy. The United States needs to rejoin the Paris Climate Agreement and specifically have a consensus across the government on climate change being an issue they need to address. The United States should also expand their environmental taxes across different sectors other than vehicles and give tax breaks to those who have decreased their emissions. Both countries should continue to invest in solar panels because it is the cheapest mode of renewable energy and reaps the most benefits over a long period of time of 25 years. Los Angeles should follow Germany’s example in creating a grid to capture and store the energy and will thus create more energy due to its exceptional sunny days. Due to German manufacturers going out of business in creating solar panels, the country should focus on keeping their renewable energy industry inside the nation and attract more international investors by continuing to grow their renewable energy industry. The United States should focus on wind and solar energy to try to reduce their reliance on fossil fuels. Since citizens in the U.S. use significantly more energy than German citizens, the United States needs to expand their industry with their larger GDP growth rate and attract more investors with feed-in tariffs like Germany. Germany needs to continue their feed-in tariffs to keep the balance between importing and exporting energy. Companies should be expected to choose the renewable energy route (specifically solar energy) due to the legislation, taxes, and the goal to “go green.”

80(Simpson, n.d., 3)

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