Cleaning Up: Leadership in an Age of Climate Change

EVs & Heat Pumps: The Real Alternatives for Germany — Ep199: Patrick Graichen

Episode Notes

In February, Germany elected a new government. Friedrich Merz emerged as the new leader, but what are his energy and climate policies, and will Germany remain a climate leader in Europe and beyond?

Joining Cleaning Up this week is Patrick Graichen, a former Energy and Climate minister in the last government, representing the Green Party. Prior to entering government, Patrick ran the think tank Agora Energiewende, working on energy from 2001 to 2012. With his deep expertise Patrick offers unique insights into the evolving political landscape and its potential impact on Germany, Europe, and beyond.

Patrick has witnessed how shifting public opinion can stall progress, and was responsible for a highly contested policy to phase out gas boilers and phase in heat pumps, which ultimately caused him to quit government. Bryony Worthington asks Patrick what he learned from that phase, and digs into the big questions surrounding the German car industry, nuclear power and the future of gas.

Leadership Circle

Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Division Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit https://www.cleaningup.live.

Links

Agora Energiewende: https://www.agora-energiewende.org
Patrick's Previous Appearance on Cleaning Up: https://youtu.be/MBCX7aZcRWI
Episode 154 with Kensa CEO, Tamsin Lishman: https://www.youtube.com/watch?v=-TpHa-uU6lc

Episode Transcription

Bryony Worthington

Germany's got a legally binding commitment to net zero by 2045 and some pretty challenging targets by 2030. Is this election going to affect that ability to meet those targets?

Patrick Graichen

Emissions in the energy sector have been going down considerably. We are on the path to phase out coal by 2030. The target that the last government set was 80% renewables by 2030 and I'd say the new government will stick to that target. So energy really is performing well. Building and transport, not at all.

Hello, I'm Bryony Worthington, and this is Cleaning Up. On February 23, Germany headed to the polls to elect a new chancellor and a new government. My guest this week is Patrick Graichen, a former Energy and Climate minister in the last government, as a representative of the Green Party. Prior to entering government, Patrick ran the think tank Agora Energiewende, which he set up following an earlier period in government, working on energy from 2001 to 2012. As he's had a front row seat influencing and tracking the German Energiewende, I could think of no one better to explore the new political landscape and the likely implications, both nationally and for Europe and beyond. He's also experienced first hand how politics can prevent progress if public opinion swings against you, as he was responsible for a highly contested policy to phase out gas boilers and phase in heat pumps. So I was keen to ask him what he's learned during that phase. Of course, there are also questions about the German car industry, nuclear power and the future of gas. So plenty of big topics to dig into. Please join me in welcoming Patrick Graichen to Cleaning Up.

Patrick, thank you so much for joining us on Cleaning Up. I wanted to start with our first question, which is always please could you introduce yourself and tell us a little bit about what you do and why?

Well, thanks Bryony for the invitation. It's great to be here. Well, I've been in the Energy and Climate space for more than 20 years now. I used to work in the Environment Ministry. Then I co-founded a think tank called Agora Energiewender, that's where we met, discussing how to move the energy transition in Germany and Europe and the UK. And then in 2021 I became State Secretary for Energy and Climate here in Germany, pushed the energy transition through and had to manage an energy crisis because of the war of Russia against the Ukraine. And now I am a private consultant on energy and climate issues, you can hire me, and I am supervisory board member of the Ukrainian TSO (transmission systems operator).

Fantastic. And just to clarify a couple of those points, so when you say secretary of energy in the German context, that's kind of equivalent to a minister in the UK?

That's a vice minister, if you'd say so. So I'd say in the UK context, it's the one below the minister.

Fantastic, and obviously this was as a part of the coalition government and representing the Green Party.

Yes. So it was the traffic light coalition, which then fell apart last year. And the Greens and me in charge of energy and climate issues.

Well, thank you for setting the scene. And of course, the reason we're talking today is because we've just had a German election, and I really was so delighted that you agreed to come and talk to us about this. There's so much in the media about the election. Obviously, from our perspective, we're really interested in what it means for climate and energy and for Europe. But perhaps we can just start with — we all know the basics of the result — we've got a new chancellor and a likely new coalition of two parties, but talk to us a little bit about what happened to the Green Party during that election.

Well, the Green Party is kind of... On the one hand, it's the second best result for the Greens since they were founded, 11.6%, I think, was the final result. On the other hand, it's less than last time, and a lot less compared to the expectations, in the sense that Robert Habeck was running to be chancellor. So at the end of the day, it is in difficult times where, not only in Germany, but everywhere, there is an anti climate backlash, and in that the greens were performing okay, one would have to say.

But as of today, they won't be part of the coalition government. It will be in opposition, joining AfD as the other major party of opposition. How are people feeling about this?

Well, actually, I think it is better that the Greens are part of the opposition, so that it's not only the AfD, the right wing, and the Left Party. The Social Democrats and Christian Democrats are going to form the government. And for all those that are going to be disappointed with their policy, there's the Greens as a democratic middle type of alternative at the next election. And not just a situation where people think ‘okay, they didn't succeed, let's vote for AfD or the Left.’

Do you feel like being outside the coalition, you're not going to be blamed? Because the minor parties in the last coalition suffered, right? I mean, well, everyone suffered from having been in government.

Yeah. That's, of course, the typical thing that one has to admit. The traffic light coalition — so social democrats red; the liberals, yellow; and the greens; was not at all liked by the population, and that had a lot to do with lots of internal fights. There was no coherent messaging at all, mostly due to the Liberals, but there was a lack of trust between those three parties. And that is, of course, nothing you can really build the coalition upon, and that's why it fell apart at the end of last year. And I guess that is also a lesson. If you don't really get a good, trusting relationship between the partners, then it's not worth it. And that means it's better to be a good opposition than being part of a coalition that just doesn't work.

So let's then turn to the new chancellor, Friedrich Merz. We're going to see CDU be the major party in this coalition. Now, what do we know about him and his party and their views about climate? And obviously, there's a lot on his plate. We've got defense issues, you've got migration issues, but on energy, which is very linked to the economy, what does he stand for?

Well, first of all, Friedrich Merz is coming from the right wing of the Christian Democrats, so he has been interested in running on security and migration issues. Now he's faced with a geopolitical situation where Europe is threatened by both Trump and Putin, where he has no second to lean back, but has to perform from the first minute on. And having that in mind, energy or climate is, I think, the 20th priority in his mind, if at all. And he said that during the campaign. So there have been 'yes, we want to have nuclear back', 'Yes, I don't like those windmills,' type of slogans in the campaign by Merz — what you would expect from conservatives who don't really like the energy transition. But it has never been important to him, and I would presume that in that new coalition with the Social Democrats, it's the Social Democrats that will have the responsibility for energy issues, and we'll see more or less a continuation of energy transition policies as we have had them in the past 20 years.

But if he's going to focus on economic growth, what I'm interested in is there's been a lot of narrative about high energy prices, regulations forcing industries out of Germany. How much of that is actually going to be part of his agenda? Because he has said, 'we've got to get back to economic growth.' Of course, foreign foreign affairs and defense are going to also really dominate, as you mentioned, the tension between both Moscow and Washington is really hard to navigate, but when you think about the economy, energy is such a primary input, he will have to surely take an interest?

Yes, you're right. But then again, what does that mean? Germany has the highest household electricity prices in the European Union and also high prices when it comes to business. Now that is largely due to our taxes and tariffs and levies that we have on top of the electricity price that comes from the wholesale market. So at the end of the day, it's about getting rid of those taxes and levies and paying them through the budget instead of putting them on electricity bills, which means money. So the real issue that Merz is facing is where to get money, and he has been promising too much during the campaign. There were calculations by economic think tanks that his campaign was 100 billion euros short of what they were promising. And at the same time, he said, 'I'll stick to the debt brake,' basically saying you shouldn't be able to make any real debt, except for 0.35% of GDP. Now that is his real issue, and that then plays also into the energy issue. He definitely needs to find money, and he'll probably have to raise our debt.

The debt brake might not be something that everyone is familiar with. How legislatively firm is that? Explain what it is and then tell us how hard it is to change it.

Well, we have in Europe, fiscal rules that say you shouldn't have more additional debt per year than 3% of your GDP. The German debt brake rules are even tighter. In our constitution, it says 0.35%. Now that is crazy. Every economist outside of Germany says, 'You guys are just nuts,' but it has been the main narrative of the conservative and liberal economic policy of the past years. Now Merz needs to get rid of it in order to find money, mostly for defense, but then also a bit for energy. And for that, he'll need a two-thirds majority, because he has to change the constitution. That is now the key issue. He'll need the Greens for that, and in the new Bundestag, Social Democrats, Christian Democrats and Greens are not enough to have two-thirds, so he'll also need some votes from the Left Party or the AfD. Now that is a situation that's not comfortable, and he'll be, from day one, in a situation where he wants to just rule through. He doesn't like that now he'll need to negotiate with Greens and the Left.

This is really interesting, because everybody's talking about national debt, but countries like Germany who are stable, you're not going anywhere. Your borders are there. You can borrow forward from the future and invest now for growth, right? And, it's really curious, because amongst all the rhetoric in Washington, you've just seen a huge reconciliation bill being pushed through that involves higher debt and more borrowing in the US. Because everybody recognizes that actually we need to inject more capital into the economy in order to grow. And it does seem very peculiar that this is in your constitution. It's such a tenet of German sort of philosophy.

Bryony, German economists are just crazy. I mean, it's just unbelievable how, if you look at the economic profession in Germany, they have kind of created a little, I would say, sect of people that believe fiscal austerity is the only way forward in life. And they managed, in a certain historical situation, to put that into our Constitution and now it's really hard to get rid of it. Also, because it has been a narrative that has been so powerful among the Conservatives and the Liberals. So yes, I totally agree, it's crazy. It's one of those things where the rest of the world is looking at Germany, thinking, what are those guys doing? And I have to agree, it is a peculiar thing, a bit like the autobahn and the tempo limit thing.

You mean the fact you can drive at any speed?

We're also the only ones in the world who do that. So every nation has its crazy elements, that's ours.

It's quite a big one. And I suppose what you're saying, and I think this is going to be really interesting, is he may need to break this for defense reasons, right? And defense reasons will be popular on the right, potentially, although I don't know what the AfD would make of it, because they're weird. But then you guys, the Greens and maybe Der Linke (The Left), you're going to want it spent on investment into socially progressive capital projects and so. So is there a way in which he has to break this piece of policy and he has to then move forward with more defense spending, but also more environmental investments and more energy infrastructure investments?

Essentially, that is the way forward, because Greens will agree to a combination of defense and environmental subsidy programs, infrastructure subsidies, stuff like that, getting down energy bills, basically. But of course, that then involves a lot of money and that will be his mental challenge, to basically throw away everything he has been saying the past 10 years and say, 'well, now I'm in government, I'll size up to the real challenges.' And The Left, Der Linke, they're very skeptical on anything that it's to do with defense. So at the end of the day, probably the only way forward would be to just not say for what purpose the money will be spent, but just get rid of that German debt brake.

Well, something to watch. Let's focus on another, perhaps, quirk of the German personality, which is your car industry. It's not the huge driver of growth that it once was, proportionately, in the economy, but it still captures the imagination. There are these German brands, it's a topic that excites a lot of attention. What, if anything, is this new government going to do on this debate around the future of the car industry?

I guess it's a two-fold strategy. On the one hand, 2025 is a year where European CO2 car regulations are getting tougher. We will, all over Europe, have to comply with tougher standards, meaning more electric vehicles have to be part of your fleet. And quite a lot of German car manufacturers are not going to meet those tougher standards. So at the end, the question is: will they then have to pay the penalty? Now there's already huge lobbying underway for the European Commission to propose some way of being able to use 2026 and 2027 sales to count toward 2025 and thereby evade any penalties. So that's going to be pushed by the German car industries to somehow get through 2025. On the other hand, it is very clear the only way for the German car industry to survive is now to move fast forward into electric vehicles. Now the question is, have Mer and his people already understood that fully. We've witnessed that while they were vocally against electric vehicles and the phase out of ICE by 2035. But suddenly Markus Söder, the Bavarian Prime Minister, came up with, 'well, we might need some electric vehicle subsidies for the next few years,' and that is because BMW has told him we need that. So I guess once the German car industry clearly says what they need in order to survive, given the fact that they are about to lose the Chinese market completely... So this is about saving the European market and maybe parts of the US market. I guess once they really tell Merz and Söder what they need, we'll see a push towards some form of subsidy program for electric vehicles.

And just to bring this back to the economy and the fact that when we go back to the results, AfD did extraordinarily well in the eastern part of Germany, the traditionally poorer part of Germany, the part that perhaps is feeling that their standard of living is reduced. Is there some way in which a government can position electric vehicles as something for the people, like as a cheaper alternative, helping with the energy crisis and cost of living related cost increases?

I totally agree. And if you look at why the Norwegians are all buying electric cars... because it's cheaper! I mean, the way the Norwegians did it, the sales tax on electric vehicles was set to zero. So electric vehicles and internal combustion cars were more or less the same price, but electricity was so much cheaper than diesel or gasoline that it was cheaper to use an electric car. Now that is exactly the way forward I'd say we need in Germany. Essentially everywhere, there is no ideology around cars. I believe for 90% of the people, if the electric car is cheaper, then they'll buy it. And so the way forward is then to have cheaper electric cars. And there we have to admit, the car industry wasn't good. They were always selling €40,000-plus electric cars, and none in the area of €25,000 which is now changing. So we are seeing more and more models in that space of €25,000 and below. And the second thing is, of course, cheaper electricity for those cars. So those are the two strategies. And that then goes back to where does the money come from? But with those two strategies, I believe you can get a very quick adoption rate of electric cars and also electric trucks. That is already underway, that is cheaper to run, so we need basically the infrastructure for truck charging.

It strikes me that Germany, like China, you've not got lots of oil reserves. You're not an oil state. So your electricity production is getting cleaner. It's also getting more weather variable. Therefore, there are times when charging your car will probably be negatively priced, right? So should you be becoming an electrostate in the same way that China is? And if you can tilt that towards where it's needed most, in the parts of the country which are feeling that they're not economically prosperous, that's surely a win-win-win. And interestingly, then, from a geopolitical perspective, if you're being squeezed by Moscow and Washington, I mean, Beijing is the home of the cheap vehicle. Cheap electric vehicles are being made in China. Will Germany change its stance on tariffs and try to get Europe to see that actually it's good for the world if we're seeing a wider selection of cars, more affordable cars, and we move beyond this very expensive dependence on oil?

Well, I think I should invite you to coalition treaty talks here in Berlin, because it's sometimes better if the preacher doesn't come from within. But yeah, essentially, that is the challenge, of course. When it comes to the tariffs, that's double sided, right? If we had cheaper electric cars, consumers would very much like it. But then again, that's a threat to the German car manufacturing industry. So I guess the stance that the European Commission has been taking is to basically have tariffs on Chinese EVs for some years. It's an attempt to buy time for the European car industry. That won't go on forever. So it's really the next three, four or five years where the European and the German car industry has to basically move in fast forward, and then once that market is open, hopefully customers have gotten used to German brands. By the way, we always thought it would be Tesla leading the German EV market. Now, with Elon Musk being so crazy, that brand has massively lost here in Germany, and might just be what Volkswagen needed. So things are crazy these days.

Yeah. I mean, maybe we should just pause there for a second and explain the Elon Musk craziness, because it was extraordinary, wasn't it? That he not just got involved in German politics, but also tell us the story about the press release that he wrote using his AI, Grok. It is worth just explaining this to our listeners, because it's so extraordinary.

I mean, it started as you would imagine, with a tweet. So Elon Musk twittered the sentence, 'only the AfD can save Germany,' our right wing extremists. And of course, there was uproar. And then our very conservative leaning right newspaper, Die Welt invited him to write an op-ed on why he thinks only the AfD can save Germany. Now that oped, was then published, and it was a bit strange reading it. And then people checked with Elon Musk's artificial intelligence and asked it to write an article about 'why only the AfD can save Germany?' And it was more or less exactly what we had seen in Die Welt. So Elon basically asked his AI to justify his crazy, crazy move. But it didn't stop there. So he then had an hour Twitter space with Alice Weidel, the front running candidate of the AfD, and then he had a showtime event, basically at the AfD manifesto event. That was really spooky. You have to look that up on YouTube. It had big brother vibes with Elon Musk on the big screen, and then the masses cheering at him. So everyone who doesn't want to be associated with AfD and right wing populism is not buying Teslas anymore, which is 80% of the population, the AfD is strong, but it's only 20%. So he really destroyed that brand.

I'm in Silicon Valley, so every third car is a Tesla, but you're seeing these stickers emerging which say, 'I bought this before I knew.' They're still great cars, but the brand is suffering. And that's going to have an effect, I'd have thought, if people are able to choose alternatives. So we should just double click maybe on AfD. And quite how extraordinary they are. Even the German government, I think, class them as an extremist group, right? This is not just a mild, slightly right wing party, they've got extraordinary links to quite dark tendencies.

All over Europe, we have these right wing parties and Germany was, in a way, late to the show when you already had La Front National in France, or the Sweden Democrats. And also, of course, in Italy, Maloney. But the difference is, in the other countries, once they were somewhat relevant, at 15-20%, they reduced their tone and became less extreme, in an attempt to really move towards 30-plus percent. AfD is different. AfD has basically, every year, become more right wing, more radical, and they have been campaigning on so-called remigration, which means we want all foreigners that we deem are not fit to live in Germany to leave the country. And if you have German citizenship, but we don't think you're deemed to be here, then you also have to leave the country. So it is really threatening that they now have these high numbers, and I would presume they'll become even more radical over the next few years. So yes, that is worrying. It is still only 20%, but it's really important for the next few years that Social Democrats and Christian Democrats really perform well, have a good economic policy, so that at least that's no reason for people to move to the right.

In addition to having this extraordinarily xenophobic and racist attitude, some of the adverts — I don't recommend anyone watching them — but they are incredibly racist and very distressing. But they're also incredibly anti-Europe. And the leader, who's an extraordinary woman for lots of weird reasons, she lives in Switzerland and seems to have a great love of Moscow. And they're very anti-Europe, so it's an extraordinary mix, isn't it?

Yes, definitely. They have it in their manifesto that they want to leave the euro and also have the European Union be some sort of Economic Alliance, but no political union anymore. And that would be the end of Europe, because essentially there were lots of Russian bots that pushed them in this election, and AfD members of parliament have been traveling to Moscow during the past three years of the war on a regular basis. We had a saying that the left was, in the 1980s, steered by Moscow. Now it's the Right. The fifth column, as we were saying, is basically directly steered by Putin. It's strange.

To bring this back to energy, Patrick, it is such a fascinating time. What is this going to mean, though, because obviously gas policy and access to cheap gas is still a fundamental need for the German economy. And you know, some are saying, 'well, if there's peace in Ukraine — it's still a big if — then the gas pipes could start flowing.' Where will this new coalition, where will a Merz land on the question of energy, especially in relation to gas?

In the electricity sector, I would expect things to be more or less moving in the same direction as before. Maybe we'll touch on it later, but there will be some sort of nuclear research program or something like that, but I doubt that there's any...

We don't want to dwell on it, but Merz did say that he wanted to stop the vandalism of dismantling them, which I thought was quite a good line, but you might disagree.

No, you won't find any of those three companies that own the nuclear power plants wanting to stop that, because they have, of course, an agreement with the local authorities about which step is now taken to dismantle what part when? So if Merz says, 'I'll stop the dismantling,' he would then have to pay for it, because you have firms operating there. You have to pay them. So the first thing he would have to answer is, where do the millions come from that are needed to stop the dismantling? And then the second is, how much would it cost to bring them back online? I'm certain it is billions of euros. And it's billions of euros bringing them back online, and it probably takes at least five years, maybe longer, because they don't have a valid certification anymore.

Safety certificate, yeah.

So, I know there are lots of people who dream of nuclear, I know that's one of the differences between you and me, Bryony, but just looking at it from a purely neutral, rational point of view, I don't see it. I don't see anyone wanting to engage in that.

I hear you, Patrick, and is this something we disagree on? But all I'd say is that to turn them off in the height of an energy crisis when we're trying to wean ourselves off fossil fuels, was, I think, crazy. Utterly crazy. And you can argue that it was all planned, but it was just the wrong call. Now, will it come back? I suspect it's going to be too hard. But what I am quite interested in is what does this change in terms of Germany's relationship with nuclear at a European level? If Poland wants to go ahead and build nuclear reactors, which it says it does, Germany should not stop that, right? In fact, if anything, it should be supportive.

Well, I guess Germany will just say 'go ahead.' Same with France or others.

Which is already an improvement.

which is already a difference to the past government, I agree. But on a personal note, I don't believe that a lot of these projects will appear because they're so darn expensive. So at the end of the day, you only buy nuclear power plants if you want to have the nuclear bomb. For everyone else, it's just a waste of money. But let's not dive into that, that's a different session.

Gas then, which is...

Gas! I mean, we had to get rid of Russian gas, which was 50% of our gas imports within just months. And that was a crazy time back in 2022. Now it is basically Norwegian gas plus LNG imports from all over the world, either directly in German LNG terminals, or via the Netherlands or Belgium. Now, if there was some sort of truce — I don't believe peace, actually — in Ukraine, it could be that one part of the deal, the Trump-Putin-Zelensky deal, is that Russian gas will go through the Ukrainian pipeline. I don't believe it will go through Nord Stream 1 or 2, but through the Ukraine pipeline back to Europe. That would, of course, increase the supply to the European market and thereby lower gas prices. So if that was an option, I would suspect Merz would really support that. It's not that Germany had special price treatments with the Russians, the gas contracts with Gazprom were indexed to the TTF gas price of the Netherlands, and that is now basically the LNG price that you have at the ports of Europe. So in essence, it would just be more supply to the European market, which everyone would find good if Ukraine got money from the transport of the gas.

I mean, one thing that perhaps is underestimated is the degree to which this is just a price that rises to the level of the global market clearing price. And so the Russian gas wasn't necessarily cheap, nor is the imported gas via LNG from the US.

There was a period in 2018 and 2019 where we had really low gas prices in Europe. And that was then both the imported LNG from the US, which was then mainly consumed in France and Spain, and somewhat in the Netherlands. And the Russian's gas. And it was a time with large supply. So the question is, really, would we come back to that situation, or do the Russians and the Americans have an interest in higher prices? That might well be the case. And now with this new crazy coalition, it might well be that you find Putin and Trump in some sort of coalition against Europe, saying, "Please pay."

The other thing that Europe could do, if I were Merz, I'd perhaps be picking up the phone to neighbors in Holland, to bring back the Groningen gas field, because that was contributing quite a lot to that surplus, and that feeling of abundance.

It's nicely said, if you're sitting in San Francisco. If you're living in Groningen and there are earthquakes every other day... I mean, there is a reason why it was stopping. Because it is at the end of its lifetime. There is still gas below, but from now on, getting the gas out of Groningen means a lot of earthquakes.

Yeah, but these are not seismic earthquakes like San Francisco experiences. These are like the rumbling of a train underground that you'd experience if you lived in a city.

And who pays for the cracks in the houses?

But my wider point is that this is partly why people get frustrated by this amalgamation of issues where we want cheap energy, we want climate change solved, but we can't put up with some earth tremors, which I agree… if it was my house...

Well we could just reduce gas demand. How about that?

Yeah, all right, well let's come on to that. Let's talk about the topic of heat pumps. I'm sure you don't want to talk about heat pumps, but can you talk us through what's going on with regards to electrification of heat in Germany? Because it was quite a heated topic, wasn't it?

It was, and at the end of the day, I quit the government because of that discussion. But everyone who is in the business knows that heat pumps are 50%, if not more, of the solution to decarbonizing the heat market. And essentially because Germany has its 2045 climate neutrality target, and any heating installation lasts 20 years at least, or longer in terms of its lifetime, the logic of our proposed law was: any new heating installation as of 2025 has to have at least 65% renewables, which would have meant a lot of heat pumps. And there was a huge campaign against it, one of the largest campaigns ever in German politics, leading to a massive delay and watering down of the law. and subsequently, the installation rate of heat pumps dropped last year to basically 2019 levels. It was hard to see for all those that cared about climate. Now we don't have that obligation in law anymore. It'll only come into effect a few years down the line, but we do still have a subsidy program, which is now gradually receiving a lot of demand. And I believe in 2025, we'll have heat pump installation rates going back up to, let's say 250,000, maybe 300,000 units out of a market that has 700,000 units of heating installations per year. So at the end of the day, we need to have 500,000 plus heat pumps. We'll get there eventually, but it is a tough battle in all countries where the gas industry is strong. So in Europe, that means the UK, Netherlands and Germany are having tough battles on heat pumps versus gas heating.

How did that campaign manifest itself? And have you had a chance to do a bit of reflection now that you're out of government on how it could have been handled better?

Yeah, I've been thinking about that a lot, and it would be another whole session, probably just just on that. But I'd say the main element which we were internally planning was that you have to combine that with what you need to do with subsidies. So essentially, a heat pump in Germany costs some €25-30,000 euros, including installation. And the gas installation is around €10,000. So it is €15-20,000 more expensive. And people were asking, why? Rightly so. Plus, then the campaign said, 'oh, yeah, but heat pumps don't work in old houses, so they will require you to renovate your building. That will cost €300,000 euros.' So there were lots of lies around it as well. And that was then a campaign we couldn't win. Once all those lies were the main narrative. But if you'd want to really win such a debate, as we were saying on electric cars, a heat pump and a gas boiler have to be at the same price level, and to heat with electricity has to be cheaper than gas. And there have been quite a lot of studies saying that that means electricity should not cost more than double what gas costs per kilowatt hour. So in essence, if gas is at 10 cents per kilowatt hours in Europe for private households, then electricity shouldn't be more expensive than 20 cents per kilowatt hours. And I think that is the way forward, and that will also be the challenge for the new coalition. Are they able to bring down electricity prices, and are we able to bring down heat pump prices?

We did a brilliant episode on Cleaning Up with Tamsin Lishman, who's the CEO of a company in the UK called Kensa. And they offer street scale, or large-block of flat scale heat pumps, which end up being much less costly per individual household. And the nice thing about it is you can put it in with maybe half the street saying 'yes.' And then if you've got a brand new boiler and you don't want to change it yet, you just join as and when. And it's right for you economically, and it's less disruptive because you drill two holes and some pipes, and then you have in your house, a small box. And that always felt to me much closer to what the gas model is — it's kind of a network of providers. It's less disruptive, and it has a better efficiency gain as well.

That is a very interesting solution that you're proposing. On the other hand, it also requires opening up the street and having that additional water pipeline there, right? So there are pros and cons of the different technologies and we now have heat pumps that work in basically every building. Yes, you could wait for heat pumps, also solutions in every situation, but at the same time, those innovations come because there is demand. And the situation we're in where if you want to really get down European greenhouse gas emissions in the heating sector, then essentially you have to move fast forward on heat pumps. And it is a proven technology in Scandinavia, everywhere. It's just that in Germany and in the UK, we've been told it doesn't work for our houses.

Or we've been told, 'Don't worry, we've got it, hydrogen is going to be the answer.'

Well hydrogen, I love the hydrogen souffle story of you and Michael Liebreich, and yes, it's nowhere coming near.

Michael Liebreich

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live. If you’re enjoying Cleaning Up, please make sure you subscribe on Youtube or your favourite podcast platform, and leave us a review, that really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That’s cleaninguppod.substack.com.

Patrick, just on this question of Germany's place in the world, we've seen a lot of discussion about retrenching, pulling back overseas spending. The UK looks set to follow that pattern. What's Germany's line going to be? Because it has been a big supporter of overseas development, for obvious reasons, the GIZ is a well-known funder of progressive infrastructure and projects overseas. What's your prognosis on that?

I fear that Merz, because of all those debt brake issues will also come forward with cuts on our ODA and external financing. I don't think it'll be that much because the Social Democrats are in that ministry, and they are very much defending that, so it might be a slight cut, but no increase. And we know that for climate finance, an increase would be necessary.

And then turning domestically, Germany's got a legally binding commitment to net zero by 2045 and some pretty challenging targets by 2030, I think it's a 65% cut. 2030 in particular seems very close. Is this election going to affect that ability to meet those targets?

Well, if you look at how our sectors are doing, emissions in the energy sector have been going down considerably. We are on the path to a full phase out of coal by 2030, so energy really is performing well. Building and transport, not at all. We were lacking far behind when it comes to heat pumps, electric cars, district heating and everything in that space. And I don't think we'll get that done by 2030. So I'd say it would be very difficult to get the 2030 targets done, but the huge cut in the energy sector might compensate for some of the shortfalls in building and transport.

That's going to need a huge increase in renewable power, right? We've talked about the fact that nuclear is not coming back, very unlikely to get rid of the gas, which will be remaining after the coal shuts. You've got to see a huge build out of wind and solar. Has Germany got enough land? Have we got enough space to put all of this?

Well, the target that the last government has set was 80% renewables by 2030, and I'd say the new government will stick to that target. And what we have been doing in the past three years is really speeding up every permitting process you can think of in the renewable space. And we now have solar installation rates of 15 plus gigawatts per year. It'll move towards 20. It's just amazing what's going on. And in wind, it has taken a while, but now the permits are there that we have more than 12 gigawatts of permits per year, so those are projects where there is the land already secured, where the permitting process is through. Now they will go into the auctions of the renewable scheme, and then they will build. So me, personally, I'm quite confident that that 80% target by 2030 will be reached, and then, really, emissions will be going down, and we'll finally have reduced electricity bills, because the wholesale power market price will go down with so many wind and solar zero marginal cost technologies in the power system.

And presumably the batteries you need to then absorb it?

The batteries will come on their own. That is just a market thing. They'll exploit the issue that power prices are zero in summer at noon and then go back up at 6pm. There's a lot of money to be made on the power market. They will be built.

And of course, more electric vehicles would also absorb that.

Yes.

How much of that plan, though, Patrick, relies on more grid infrastructure? I meanGermany, famously, doesn't really have an integrated grid system.

We do have one. We just have a lot of bottlenecks .

Okay, we do too, that's okay.

Yes, there are a lot of additional North-South power lines needed. But also, we were having lots of permitting processes, speeding up elements. So I would assume that that always is lacking by 2-3 years, but we'll have that done by 2030. The discussion that is now coming up is that the electricity demand won't be as high as we thought it would be in 2030 because electrification of heat and transport is slower than expected. So then are we having all that electricity and no one who wants it? So that's the discussion that is coming up now. But I'd say it will all work out, because wind offshore is also taking longer than we thought. So at the end of the day, there's quite a challenge to get everything done. But in those past three years, we basically have given all the necessary things so that it can be done. So if Merz is sensible, he'll just continue and then be the star who had 80% renewables at the end of his legislative period.

But let's hope it also leads to, as you say, a reduction in the costs. Because the challenge is during this complex transition, which is going to take decades, there's turbulence, there's times in which your capital expenditure is outstripping the savings, and it's not being felt in the public purse. So I think the really crucial thing is getting those bills down and getting people to benefit from electrification, and getting their bills down overall.

Totally agree.

I wanted to talk about Germany's role in Europe because —and this is relevant to what we just talked about — In the Fit For 55 package, which is Europe's flagship climate and energy policy, we're going to be bringing in both the transport and the heat sectors into an emissions trading scheme. What could happen to that policy? Because it's been signed off, but now we've had all this turbulence and change politically. Where do you think Germany will take that?

It was essentially Germans and German Christian Democrats in the European Parliament that have been pushing the ETS on building and transport, so Germany can't just give up on it. On the other hand, we know that everyone in Eastern Europe wants to get rid of that instrument, and also France was never really fond of it, so there will be a huge push to have a look at it again. And I believe once the right wing press in Germany realizes what is coming up in 2027 with additional CO2 prices on transport and heat, there will be huge pressure. I don't think it will be abandoned, but it means we'll have to have a closer look at what are the measures within the ETS2 that somehow make sure that prices don't just go through the roof. We do have a CO2 price for building and transport in German law, but it is only rising by €10 per year. And I can imagine that that is kind of the thing that also the rest of Europe would accept. Yes, there needs to be a CO2 price on heating and transport, but it shouldn't be too high, and it shouldn't have sudden changes. So a €10 euro per ton of CO2, which translates into something like three cents per liter of diesel or gasoline — that's per year as an increase — that would be okay, but not more, which would mean opening up the ETS directive again. So I expect that to be a major discussion in 2025 and 2026 in Brussels.

Let's hope nobody from your right-wing parties are watching this podcast. They're gonna know about it now. But I do think there's a question here, though, about how Europe could adjust itself so that it can help make Europe feel like they are all in this together, because at the moment, that policy is somewhat separate from the other carbon price that's on the power sector. But if you could imagine southern and eastern states moving faster on decarbonizing their power sector, and that could act as a price break on the carbon price on the harder to abate sectors, the transport and heat sectors, where perhaps it's harder, and we're a bit further behind. So if Europe as a whole introduces some flexibility, so that the countries who are moving fastest benefit, maybe there's some flexibility there between the different markets and prices.

Yeah, of course, that's one of the ideas to basically have ETS1 and ETS2 linked, and some emissions rights exchanged there. But don't underestimate price increase potential in the ETS1 once we have gotten rid of coal in Europe. Then the harder part begins, which is getting rid of gas in the power sector and getting rid of CO2 in industry, and that might also increase prices in ETS1. So we are now getting into that phase where the cheap elements of getting rid of CO2 are suddenly gone. I mean, there's still some coal, and that will be the next thing, but at the end of the 2020s we are basically in a world where the harder to pick cherries come. And I believe electrifying heat and transport is easy, so let's focus on electric cars and heat pumps. That's the way forward, also to get down prices in the ETS2.

Well, that's a good hopeful reminder that actually, your crazy German economists would say the best possible thing would be to put this all under one price mechanism, and then those things do flow out right?

And then the AfD has 40 plus percent. I guess that's what everyone is afraid of.

That if you did it in the most logical way, emotionally, people would be turned against it? And that is exactly where we're at, right? We know the logic of this makes complete sense, but it's emotionally highly charged, and that ability to scare people is always easier than it is to make people feel good about what they've already normalized.

It's the economically efficient solution. Everyone who is in that space knows that. But if you do surveys and ask them, 'What kind of climate policy do you support?' Higher taxes on CO2 is always the one thing that nobody likes. Politicians know that as well.

Maybe what we should be doing, though, is talking more about the revenues, right? Because if you auctioned — I don't know what ETS2 is planning — but if you auction it and make sure that money is visible... Making pollution expensive is popular, but then what do you do with the money? Is then the question, isn't it? How do you make people feel that this is something that benefits them? And giving them electric cars would benefit them. So that's what we should do.

So that's basically coming back to the beginning of our conversation. Make the good cheap, make the solutions that are climate friendly, make them the cheaper option, and then people will love it, and people will buy it. I guess that is the main way that the politics of climate goes forward.

Exactly, and why I sometimes feel there's light amongst all the gloom is that because the core technologies — batteries, solar power, wind — the prices have come down to such an extent that that is actually now a win-win for everybody. And Europe is just starting now with the realization that, 'yes, these things might be coming from China, but they're reducing our costs, and it's making us more resilient.' And I'm confident that's going to come down.

And coming back to the question of, how does this election play out for German energy policy? Because the technological developments are just as you've said, I don't expect that much of a change. So we'll see. But I'd say expect continuity in German energy policy.

Well, that's a great point to end on. Thank you so much, Patrick, it's been a pleasure as always. Let's stay in touch, and hopefully we can revisit this in a little while and see whether that prognosis is correct.

Bye, bye. It was fun.

So that was Patrick Graichen, former State Secretary in the Federal Ministry for Economic Affairs and Climate Protection, and founder and head of the Agora Energiewende thinktank. It feels as if energy policy has never been more volatile,and I'm not sure I'm as sanguine as Patrick about Europe and Germany carrying on as usual with their climate targets and energiewende. But if there's a way of clearly delivering lower prices to consumers thanks to more renewables coupled with affordable electric vehicles and electric heating, then there will be less need for those targets. As usual, we'll include links in the show notes, including to Episode 154 with Tamsin Lishman, CEO of Kensa heat pumps. My thanks as ever to Oscar Boyd, our producer, our editor Jamie Oliver and the growing team who make Cleaning Up podcasts and Leadership Circle possible. We hope you enjoyed this episode. Please join us next week for another episode of Cleaning Up.