Merkel Spends Big to Kickstart Germany’s Stalled Coal Exit

Brian Parkin, Birgit Jennen and William Wilkes
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German $55 Billion Plan to Scrap Coal Clears Cabinet Hurdle

(Bloomberg) -- Chancellor Angela Merkel clinched a deal to kickstart Germany’s stalled coal exit, offering billions in compensation to utilities and affected regions so that closures of plants can start this year.

In talks that began Wednesday evening and lasted well into the night, the government hammered out a timeline with state leaders to shut down the country’s coal-fired power generation by 2038, a plan that includes 40 billion euros ($44.6 billion) in compensation for impacted regions.

Utility RWE AG, Germany’s biggest coal-fired power producer, will receive 2.6 billion euros in payments, according to a person familiar with the matter. The stock was up 1.7% mid-morning and a spokesman said the company would comment later Thursday. Lignite operators in eastern Germany will receive 1.75 billion euros, German Finance Minister Olaf Scholz said at a press conference in Berlin.

Merkel has been in a tight spot on the issue, facing pressure from environmentalists and miners alike. Climate tops voter concerns, and Germany will already miss its 2020 targets under the Paris Agreement. On the other hand, the poorer states in the former Communist East, where the bulk of the mines are, fear a growing gap to the West. Her predicament feeds into a broader political challenge, with the Greens party and the far-right Alternative for Germany gaining support on both sides of the political spectrum to squeeze Germany’s traditional mainstream parties, including her Christian Democrats. The AfD has been particularly strong in the eastern mining states.

“It was a long night -- it lasted until 2 a.m. -- but we were able to achieve a sensible agreement,” Armin Laschet, premier of the state of North-Rhine Westphalia, said in an interview with Deutschlandfunk radio. “The time frame that we’ve agreed on is ambitious, but realistic.”

Laschet estimates that around 3,000 jobs in his state will be affected by the closures. The premier also confirmed closures will take place more rapidly in west German states. The biggest resistance to the plan had come from states in the former communist East, which relies most heavily on coal and has a lower per capita income than in the West.

Under the agreement announced early on Thursday, LEAG’s Jaenschwalde power plant is to be transformed into a gas-fired unit. The Hambach Forest, which was threatened with destruction to make way for an RWE lignite mine, will be preserved, according to the government.

The federal government will also pay for retraining programs for power and lignite mine workers affected by plant closures.

The deal is part of a broader effort this week to showcase measures to combat climate change. On Tuesday, the government announced massive investment in railways so as to lure passengers from cars and planes, which have a higher carbon footprint.

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--With assistance from Andrew Blackman and Chris Reiter.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;Birgit Jennen in Berlin at bjennen1@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt, Iain Rogers

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