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2018 Special purpose report - Coordination and steering to implement energy transition by the Federal Ministry for Economic Affairs and Energy

Sep 28, 2018

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0 Executive summary
long version (pdf)We audited the steps taken by the Federal Ministry for Economic Affairs and Energy to implement energy transition and found major shortcomings. These are set out below:

In spite of the considerable input of human and financial resources, Germany has largely not yet accomplished the targets set. (no. 1.2)

The Ministry has had lead responsibility for implementing energy transition for nearly five years. Thus, the Ministry has a coordinating role across government for relevant activities. At the Ministry alone, 34 divisions in four directorates are involved in this process. In addition, five other ministries and all federal states also have a role in implementing energy transition. Still, the Ministry has not defined cross-government coordination. No structure of overall responsibility has been put in place.

We feel that it is essential for the Ministry to play an effective role and, to this end, to determine

  • what coordination functions fall into its remit;
  • how coordination functions may be properly organised;
  • what cross-government coordination body is to be established;
  • whether an inter-ministerial committee for coordination among the federal ministries will be set up; and
  • whether to initiate a joint coordination committee on energy transition to be composed of federal and state governments.

The Ministry believes that energy transition is coordinated in an effective and efficient manner and that there is no need for action. The Ministry is also of the opinion that an appropriate level of coordination is established among all players at all government levels.

This assessment is not convincing if you look at the undisputed failed targets and the considerable burdens placed on the business community, public budgets and private households. One major shortcoming is the fact that the Ministry has not defined and does not plan to define the requirements for implementing energy transition transparently and efficiently. A body vested with overall responsibilities and decision-making powers is absolutely needed. (no. 2)

In the Ministry’s view, the steering tools for energy transition include monitoring, strategic controlling and internal cross-cutting controlling at divisional level. At the same time, statute law and delegated legislation have a steering effect.

  1. As part of monitoring, the Ministry used 48 different sources of data and 72 indicators to track the progress made. The Ministry intends to improve monitoring by introducing even more indicators. So far, the Ministry has not defined measurable targets and yardsticks for key goals such as “energy security” and “affordability”. Unless the Ministry has defined the targets of energy transition in a way permitting to measure and track any progress made, no effective steering is possible. Adding further indicators does not address the problem stated.

    The Ministry has still not ensured sufficient transparency of the costs and expenditures associated with energy transition, although it has comprehensive data on federal budget expenditures, the components of energy prices that government can influence and the input required to implement energy-specific legislation specified in regulatory impact assessments. The Ministry could use such information in order to make all costs and expenditures transparent. Calculating such a “total amount” is necessary in order to better inform Parliament and the public and to make the expenditures of final consumers on electricity and other costs of energy transition transparent.
  2. As part of controlling, the Ministry used various goals, target and actual figures and indicators in order to measure the status of target achievement. Data relevant for steering was not or not fully recorded. In addition, effective steering of energy transition was hardly possible because key indicator data could only be provided with considerable delay.
  3. The Ministry also uses various funding programmes to steer energy transition. It continued funding programmes although they were little in demand.
  4. Currently, 26 laws and 33 statutory instruments stipulate provisions, partly in great detail, on the generation, storage, transmission, distribution and consumption of energy. It takes much time to amend such laws and statutory instruments to make them fit for energy transition. This leaves little leeway to flexibly adapt steering to the dynamic development of this process.

    We make the point for deleting any detailed provisions in parliamentary and delegated legislation where possible. Instead, a legal framework for energy transition should be established. A potential supplementary tool outside a “planned economy measure” would be a general charge on carbon emissions. As carbon pricing would make the generation of renewable energy more attractive, the Ministry could use its funding programmes to provide supplementary incentives.

We demand that the

  • Federal Government set measurable targets for affordability and energy security;
  • Ministry use indicators only that can have a steering effect;
  • Ministry make the costs of energy transition as fully transparent as possible with a reasonable input;
  • Ministry use steering tools that always focus on the targets of energy transition;
  • Ministry consider relying on more effective steering mechanisms such as carbon pricing as a further tool for implementing energy transition.

In commenting on our findings, the Ministry states that it does not see any need for action as to better steering energy transition. The Ministry rejects our cost assessment regarding it as questionable from the methodological point of view. For instance, the Ministry states that the levy imposed by the Renewable Energy Sources Act as the biggest cost item and the relief measures cannot be considered as costs of energy transition. The Ministry also rejects our findings on controlling, arguing that the steering effect of the system currently in place has stood the practice test.

We acknowledge that the Ministry considers its steering system to be sufficiently effective and does not see any need for action. Given that the targets of energy transition may likely not be accomplished either in full or in part, the Ministry’s overall steering is flawed. For a steering system to be effective, verifiable targets need to be defined. In addition, it must be possible to identify any need for action – also in response to external impacts such as economic or population growth. What is also needed is commitment and possibility to change course.

To ensure that energy transition is accepted by society at large, the Ministry needs to disclose the financial impact associated clearly and transparently. According to our calculation, in 2017, costs and expenditures imputable to energy transition totalled at least €34 billion. With reasonable effort, the Ministry should make the costs of energy transition fully transparent. (no. 3)

In our view it is a top priority to enhance coordination and steering of energy transition. The Federal Government is still called upon to take action. Otherwise, the impression may arise among the German and international public that Germany is not able to successfully shape and implement energy transition which is a long-term process affecting economy and society as a whole. (no. 5)

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Sep 28, 2018

Energy transition threatens to fail

The German SAI reports on the implementation status of energy transition.

“The intergenerational project of energy transition run by the Federal Government is at risk of failure. Our audit evidence suggests that implementation is largely falling short of the targets set”, concluded Kay Scheller, President of the German SAI when he communicated a report to Federal Parliament on how the Federal Ministry for Economic Affairs and Energy has implemented energy transition. He added: “So far, the enormous efforts associated with energy transition and the considerable burdens placed on citizens and the business community have not been matched by any reasonable benefit. If energy transition is to be successful, the Federal Government needs to change course.”

The German SAI found that the Ministry did neither effectively coordinate nor adequately steer the energy transition process. The financial burdens placed so far on private sector businesses and the taxpayers have been considerable. According to our assessment, costs and expenditures imputable to energy transition totalled at least €34 billion in 2017. Nevertheless, the Federal Government will fail to achieve almost all energy transition targets set for 2020. The audit findings illustrate that this failure is also due to shortcomings in the Ministry’s coordination and steering efforts.

The Ministry does not show the commitment need to manage such a complex project. For example, even after five years, it has not accurately defined how to perform the coordination function in order to help ensure that the Federal Government accomplishes the targets set for energy transition efficiently and effectively.

We pointed out options to enhance coordination and steering of the process. For instance, it is a top priority to establish a body that is vested with overall responsibility and decision-making power for implementing energy transition.

The Ministry needs to ensure full transparency of all related costs both for the purpose of steering and increasing general acceptance of energy transition. Furthermore, the Ministry should clearly define the terms of energy security and affordability. The Federal Government should abandon its approach of using a large number of complex rules and regulations governing energy transition. Instead, the federal Government should establish a legal framework and economic incentives to encourage environmentally friendly behaviour. Carbon pricing is one option to this end. Imposing such a charge would make a large number of levies and taxes obsolete and help clear the jungle of rules.

The Ministry rejected the majority of our recommendations. The Ministry does not see any need for action and believes that energy transition is coordinated effectively and efficiently.

In the past five years, the costs imputable to energy transition totalled at least €160 billion. If the costs continue to increase and the targets set are not achieved, trust in government may further deteriorate. From our perspective, significant improvements in coordinating and steering energy transition are vital.

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Statement of the President of the German SAI

Ladies and Gentlemen,

Energy transition is a major intergenerational project which concerns society as a whole; it is a long-term endeavour involving a large number of players. The Federal Government plays a key role and earmarked significant resources for this project. In 2017, such resources totalled some €8 billion. The project also implies lost revenues for the Federal Government. One example is the exemption from electricity tax for industry. Furthermore, the Federal Government has lead responsibility for enacting legislation on energy transition.

To implement energy transition, the Federal Government has developed a roadmap up to the year 2050. The next milestone is to be reached in 2020. By then, the Federal Government seeks to achieve quantitative targets in the following three key areas:

  • reduction of greenhouse gas emissions
  • increased share of renewable energy
  • enhancement of energy efficiency and/or less energy consumption

We have now drawn our conclusions, about a year before the 2020 milestone is to be reached. We have reported to both Houses of the Federal Parliament and the Government on our audit findings.

Our findings reveal a number of shortcomings. As to implementing energy transition, Germany will fail to accomplish most of the targets set for 2020, in particular regarding the

  • reduction of greenhouse gas emissions;
  • reduction of primary energy consumption;
  • increase in energy productivity, and
  • increase in the share of renewable energy in transport.

As a result, the government project threatens to fail as a whole.

  1. Certainly, this state of affairs is deeply unsatisfactory. We have to bear in mind that the Federal Government has adopted energy transition to respond to the climate change, which is a major cause for migration, distress and extreme weather events.
  2. Most unfortunately, Germany has lost its leading role at the international level, a role that Germany itself has been propagating: German energy transition was a flagship project. Germany had an excellent start, but, currently performance is rather poor when compared to other countries.
  3. In particular, the enormous effort made and the considerable burden placed on the citizens and on the economy are a matter of concern. This is in sharp contrast to the poor benefit obtained by implementing energy transition.

Let us have a closer look at the efforts undertaken:

  • In 2017 alone, the German SAI calculated that costs and expenditures imputable to energy transition totalled at least €34 billion. This amount does not only comprise expenditure incurred by the Federal Government, but also the burdens borne by the consumers, particularly the levy imposed by the Renewable Energy Sources Act. If you take the past five years the amount is at least €160 billion.
  • The Federal Government has not provided a general overview of the costs – there is no transparency. We consider this a substantial shortcoming to be addressed.
  • In 2017, about 675 full-time staff worked at federal ministries and subordinate bodies to implement energy transition. Almost 300 of this staff work in 34 divisions at the Federal Ministry for Economic Affairs and Energy. Currently, there are at least 45 committees in which Federal Government and state representatives work on energy transition issues.
  • There is also a vast number of rules and regulations. At present, 26 Acts of Parliament and 33 statutory instruments govern the generation, storage, transmission, distribution and consumption of energy.

You can see that “the more, the merrier” does not apply here. The input of resources is unprecedented and is at risk of running counter to the main goal of energy transition, namely making best use of scarce resources.

Certainly, there are many reasons why it will not be possible to achieve the targets set for 2020. Some targets may simply be overly ambitious.

We hold, however, that the poor results in implementing energy transition are largely self-inflicted:

  • Close coordination among all players, projects and programmes is lacking. 34 divisions of the Ministry are involved in the exercise. But there is no coordination body in place, no unit that has lead responsibility.
  • Steering, controlling and the mechanisms for responding or modifying action are too cumbersome. Where projects show obvious weaknesses the Ministry often does not take any action at all. At the Ministry, various controlling instruments are operated at the same time without any coordination. Diverse controlling approaches and data sources are used. Information collected is often redundant, incomplete or inconsistent.
  • In general, data is a matter of concern. There is a lack of meaningful data which could serve for steering purposes. Frequently, data is of little benefit for controlling purposes, is provided too late, or, on the basis of the data available, the wrong conclusions are drawn. The Ministry relies on 48 different data sources to check, on the basis of 72 indicators, the implementation status of energy transition. Also in this regard, “the more, the merrier” does not apply. But one thing is particularly clear: The problem does not lie in the information available, but in implementing the energy transition process. Generally, there is sufficient information available on the impact of projects and programmes, but the commitment to addressing any problems stated is lacking.
  • For one of the three key goals of energy transition, namely environmental compatibility, a huge number of indicators are available, whereas for the other two goals of affordability and energy security, no quantifiable targets or measurable indicators are in place. Thus, no information is available on those two key goals of energy transition, they are clouded in mist.

The Ministry has had lead responsibility for implementing energy transition for nearly five years. In all these years, it has failed to determine how to ensure that energy transition targets are achieved in a transparent and efficient manner.

Instead, the Ministry believes that there is no need for action because it feels that energy transition is being coordinated effectively and efficiently.

However, this does not reflect the actual implementation status. The Ministry needs to change course. To this effect, the German SAI has developed the following proposals:

  1. Incentives should be increased and regulation reduced. To this end, a general carbon pricing could be useful. The charge would make carbon emissions more costly and provide incentives to reduce such emissions. The failure to achieve the targets is particularly obvious in this respect.
  2. It might also be useful to clear the jungle of rules. It is hardly possible to keep track with their impact. Complex funding mechanisms may be abolished, particularly those for which there is no demand. Some examples:
    • We have recently reported on electric mobility programmes. For such programmes there is rather little demand. €600 million have largely been put to ineffective use.
    • A programme launched to strengthen power efficiency in the business sector: The StepUp! programme aimed at approving 1,000 requests – only three funding applications were approved. Programme funds have almost not been used.
    • There are other examples showing that the number of applications was very low or authorised funds had not been called for. In 8 out of 16 cases, the disbursement rate did not exceed 50 per cent in 2017.

We conclude that, to make a difference, the Federal Government needs to realign the tools in place: Which projects have had a useful impact? To answer this question an effective steering mechanism is required.

The Federal Ministry for Economic Affairs and Energy needs to address the issues in order to make the energy transition project a success.

Thank you very much.

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