Germany Executive Briefing Paper

8/19/2019 Germany Executive Briefing Paper

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Introduction

To the United States, Germany is the most critical nation in Europe. Not only does Germany have thelargest economy in Europe, it is also the “largest European trade and investment partner of the UnitedStates”[2]. Thus, it is in the best interests of the United States to analyze the driving forces in the Germaneconomy. Energy use and energy security are two extremely important factors in ensuring a stable and

health German economy, especially since it relies very heavily on exports and industrial output. Industryenergy consumption has been found to be the leading sector in energy consumption, partly becauseexports make up 51.8% of the GDP. Germany has been a leader in efficient energy use, and is onlyshowing increased energy use in the transportation sector. This is due to decreases in energy intensity,which is caused by more efficient technologies in both industrial and residential locations. In 2011, anaggressive package of laws was passed to decrease energy consumption and, more importantly, transitionfrom fossil and nuclear fuels into renewable energy production. The purpose of this report is to assessthese two main factors, and to provide an idea of the direction the country in terms of energy problems.

Demand for Energy

Germany is the fifth largest economy in the world, and the largest economy in Europe. In 2012, Germany

produced a GDP of $3.428 trillion through its population 81.89 million[1][2].

Figure 1. The graph above illustrates Germany’s total final consumption of energy bysector. Mtoe refers to million tons of oil equivalent. The total energy used per sector can

be determined by subtracting the peak of its shading from the bottom of that shading.Sectors in the “Other” category include commercial, public service, agricultural, fishing,and other non-specified sectors. SOURCE: International Energy Agency, . "Germany2007 Review." Energy Policies of IEA Countries. International Energy Agency . Web. 19Feb 2014.<http://www.iea.org/publications/freepublications/publication/germany2007.pdf>.

As seen in figure 1 Industry makes up 32% of energy use while transportation and residential make up

24% each. The remaining 20% of energy use falls in the “other” category, most of which is commercialenergy use. Despite some peaks and valleys, the residential and other categories have remained relativelyconsistent since 1973. Transportation has seen a steady slight increase while industry has seen a steadyslight decrease over the years.



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Figure 2. The graphic above serves to compare two energy use measurements for three separate OECDcountries. The diamonds represent the kilotons oil equivalent per 100 people. The squares represent thekilotons oil equivalent required to produce $10,000,000GDP. SOURCE: Papadakis, Maria. “Country

Energy and Development Indicators” ISAT 311, Blackboard. 18 Feb. 2014. Excel File.

The best way to analyze Germany’s energy profile is to compare it to other countries. In figure2 Germany is put into perspective side-by-side with the US and Norway, which have similareconomies but different energy usage. The diamonds on the graph represent energy use percapita, which is simply the total amount of energy used by the nation divided by its population.This gives a basic overview of how much energy the average person uses. The squares representhow much energy is required to generate a certain amount of GDP. This serves as a goodindicator as to the structure of the economy, as well as the efficiency of the industrial sector. Asseen in the graph, Germany has the lowest energy use per capita out of the three countries.While the US is by far the most energy intensive out of these countries, Norway takes the leadin being the least energy intensive.

Germany’s residential energy use can be quantified by looking at three main factors: population trends,quality of life, and energy efficiency. According to the World Bank , Germany’s population from 1975 to1989 remained fairly constant, with small population drops and increases along the way[3]. From 1988 toapproximately 2003 Germany experienced population increases ranging from 0.9% to 0.1%, the largestincreases since the 1960s[3]. Since that time, the population has evened out and even started to decline byapproximately -0.2% in the last 4 years[3]. These population trends do not directly correlate withresidential energy use, except for during one period of time. From 1990 to approximately 1996, anoticeable population increase and residential energy increase can be pinned on the reunification offormerly communist Eastern Germany into the Federal Republic of Germany. “GDP per person [in

Germany] has risen by a factor of 6 since 1950” [2]. Even though this increase started to stall in the mid-1990s, the GDP per person did not decrease too much[1]. Such a substantial increase in living standardsusually marks increased individual energy use. However, effective energy efficiency policy and

technology have helped subdue this expected increase. The increased efficiency in large electricalappliances has had the most steady and profound effect on this. Space heating energy costs have also beenshown to decrease substantially since 1990[6]. The desire for energy efficient appliances is also propagated by relatively high electricity costs. The effects of these factors can be seen in figure 2, inwhich Germany has the smallest energy use per capita.

The reasons for an increasing use of energy use in the transportation sector can be explained most readily by observing quality of life and energy efficiency. It is very important to note that car and truck



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transportation makes up a larger chunk of the transportation sector than do air, train, and buses. Asmentioned earlier, the GDP per person increased steadily since the 1950s. This has a lot to do withtransportation using private vehicles. Even though German vehicles have made a substantial decrease infuel consumption, more and more Germans have also begun buying individual cars due to higher income.This allows for longer and more frequent trips as compared to public transportation. Compared to theUnited States, Germany uses public transportation up to 5 times as often [5]. Another reason for high

transportation energy usage is the need to move goods out of the country. Germany relies very heavily onexports to fuel their economy. Therefore, goods must travel relatively large distances to reach sea or air ports, wher e they must travel even more. Germany’s reliance on exports will be explained further in thefollowing section.

Unlike other sectors, Germany’s industrial operations have seen a measureable decrease in energy usage,despite Germany being one of the top 10 industrial producing economies in the world. This decrease inenergy usage is highly a result of their improvements in energy efficiency, their shift to a serviceeconomy, and their role as an exporter. Germany relies on the import of energy sources to meet theirdemand, which will be covered in depth later. Therefore, to continue competitive industrial practices in acountry that has high energy costs requires very efficient processes. As shown in figure 2, Germany has

relatively low energy intensity, although it is not as low as Norway. It is interesting to note that 48% ofindustrial electricity demand is in energy intensive industries [4]. While both the United States andGermany are shifting to a service based economy, the ratio of manufacturing GDP to service GDP ishigher for Germany than for the United States. Despite this, Germany still has lower energy intensity because of their efficient energy expenditure. The reason for high competition is Germany’s export-basedeconomy, which must compete with cheap labor exporting countries. This is fueled by the fact that

“relatively weak consumer [Germany] demand is a consistent feature”. This caused exports to make up51.8% of the total GDP in 2012[2].

When looking at future energy demand in Germany, it is important to note that population is not expectedto substantially increase or decrease within the next several years[3]. In 2011, Germany passed an

extremely ambitious energy reformation act called the Energy Package. This legislature aims forrenewable energy sources to supply 80% of electricity by 2050[7]. Also, they aim to reduce energyconsumption and increase energy efficiency, especially in residential housing, to meet this goal. Thedecrease in demand is to be met with increase awareness and some regulation[7]. The laws emphasize theneed to keep electricity prices low so that industrial competition is still possible. By 2050, all of theirnuclear energy is to be removed. Traditional fossil fuel generation, which makes up 80% of totalelectricity generation, is set to decrease to 20% by 2050[7]. To compensate for the lost energy production,some high efficiency combined cycle gas and coal plants are to be built. Furthermore, most of the energyis to be replaced with renewable energy. To allow for renewables to be commercially viable thelegislature will subsidize some of the cost as well as invest heavily in expanding and retrofitting theelectrical grid. The EEG differential cost is the subsidy paid to bring down the price of renewable energyderived electricity, and the money spent for EEG differential costs has increase from €0.9 billion in 2000

to €13 billion in 2011[7]. Expansion of the electrical grid is set at approximately 1900 km of newelectrical lines[7]. Germany also mentions the importance of keeping close ties to its local and foreignallies as energy imports will still be needed to meet a large portion of the energy usage in 2050[7].



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Energy Production and Security

Germany’s size, location and political power in Europe give it very high influence on the energy sector ofEurope and its own energy security, but they still rely on imports from other countries to meet a majorityof their energy demand. Although this is the case, Germany does still have a very secure energy sectordue to their steps toward a sustainable and constant energy supply. Their strong and efficient government

allows them to respond to emerging threats very effectively when compared to some of their neighboringcountries[8]. They have a very diverse selection of fuel, which does not leave them dependent on any one particular energy source. They are the world leader in many different categories of renewable energy, andare continuing to make changes to shift to more renewable sources. A potential threat to Germanys’energy security in the future could be an economic shock due to a drastic rise in oil and natural gas prices.This would occur primarily because Germany is 96% and 86% reliant on the two resources, respectively.This threat would be even greater in the winter months, since Germany uses about 3 times more naturalgas during this time due to their cold climate [8]. Even though Germany faces this possibility, it is notlikely a concern due to the yearly decrease in the demand for these two resources. This is contributedfrom their steps toward a more efficient energy economy.

Germany’s primary source of energy still comes from oil, making up about 35% of their total primaryenergy consumption. In fact, Germany is one of the world’s largest oil refiners and consumers, having thecapacity of about 2.2 million barrels of crude oil per day. Having this kind of oil capabilities allowsGermany to not have an oil dependence on one country, greatly increasing their energy security. Alsocontributing to their energy security is their variety in importing countries. They import oil from multiplecountries, thereby decreasing their dependence on any one source. Germany’s oil imports by source areshown in Figure 3 below. The majority of this oil is used for the countries transportation sector, althoughthe government is advocating to drastically increase the number of electric vehicles on the road in theupcoming years. Doing so would most likely remove Germany from being the 5 th largest consumer of oilin the world. Germany is also a world leader in the use of natural gas [12]. The majority of this gas comesfrom cross-border pipelines that are imported primarily from Russia. Their use of natural gas has slowlydecreased throughout the past 10 years due to improvements in their energy efficiency. Nuclear power is

also an abundant energy source in Germany, although it is a political issue regarding when the nucleartechnology should be stopped completely. Because of this, German nuclear power has been at a decline,and is slowly attempting to shift to more renewable energy instead. As of now, the decline in nuclearenergy has led to an increased use in coal for electricity, which has led Germany to burn more coal than ithas in 25 years. About half of the coal being burned in German plants is lignite, or brown coal, while theother is bituminous coal, which is of higher quality than lignite. The source of energy that Germany is themost successful in worldwide is renewable energy. The percentage of electricity produced fromrenewable resources has increased from 6.3% to about 25% in the last 15 years, with goals to furtherincrease that number drastically [8]. A large amount of the renewable energy comes from wind and solar power. Geothermal and hydroelectric powers, as well as the use of biofuels also are some sources ofrenewable energy.

About 4.7 quadrillion Btu is produced in Germany in a typical year. They consume over 13 quadrillionBtu in a year which shows that they import the majority of their energy. Both natural gas and oil isimported into Germany through border pipelines from countries such as Norway, Russia and Netherlands.Russia is their mainly supplier of crude oil, natural gas and hard coal, which could potentially be a threatto their energy security if problems were to ever arise with Russia’s supply.



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Figure 3. The pie chart above shows the many sources that Germany imports oil from. Germany is the 5 th largest oilconsumer in the world, and imports oil through several large pipeline systems. SOURCE: "Germany." Marcon

International, Inc. N.p., n.d. Web. 16 Apr. 2014.<http://www.marcon.com/print_index.cfm?SectionGroupsID=51&PageID=391>.

Energy Issues and Policies

The German government is currently implementing a long term policy to move more toward a sustainableenergy supply. The policy requires a 20% drop in carbon dioxide emissions before the year 2020 as well

as a large increase in the consumption of renewable energies. This policy has already resulted in a largeexpansion of renewables, with wind power leading. Also, as a result of this, nuclear power is slowly becoming less as renewable energy takes its place. Their current shift towards this more renewablesociety is shown in Figure 3 below. The German government even plans to phase out all nuclear power plants completely by the year 2022 due to controversy in nuclear energy [8]. This transition has the goalof reducing Germany’s energy security threats by limiting fossil fuel use, which would allow them to produce the majority of their own power rather than import it. Even though this policy is improving therenewable sector, it has negative impacts on the German economy. The consumers of Germany alreadyfaced the highest energy prices, and the renewable energy has increased them further, taking a further tollof the middle class. Very large subsidies for the renewable energy are harming the economy, imposinglarge costs on lower class energy consumers [9]. This problem cause Germany to open up their first coalfired power plant in 8 years to help stabilize the economy, showing that their economic problem had to be

solved at the expense of their national policy. These plants are likely to be replaced in the future bynatural gas plants, in order to meet the carbon emissions reductions target.

742

336285

251

41

474

German Oil Imports by Source ( in

thousand bbl/day)

Russia

Norway

United Kingdom

Libya

Nigeria

Other



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Figure 4. The above graphic shows Germany’s current energy shift that consists of using more renewables, nuclear and

natural gas.They also have had a dramatic decrease in their coil and oil usage. SOURCE: "Germany EnergyOutlook." International Energy Agency. N.p., 2012. Web. >.

Conclusion

To the United States, Germany is the most critical nation in Europe. Not only does Germany have thelargest economy in Europe, it is also the “largest European trade and investment partner of the UnitedStates”[2]. Thus, it is in the best interests of the United States to analyze the driving forces in the Germaneconomy. Energy use and energy security are two extremely important factors in ensuring a stable andhealth German economy, especially since it relies very heavily on exports and industrial output. Industryenergy consumption has been found to be the leading sector in energy consumption, partly becauseexports make up 51.8% of the GDP. Germany has been a leader in efficient energy use, and is onlyshowing increased energy use in the transportation sector. This is due to decreases in energy intensity,

which is caused by more efficient technologies in both industrial and residential locations. In 2011, anaggressive package of laws was passed to decrease energy consumption and, more importantly, transitionfrom fossil and nuclear fuels into renewable energy production. The purpose of this report is to assessthese two main factors, and to provide an idea of the direction the country in terms of energy problems.

Germany is, and will likely remain one of the United States’ closest allies. Therefore, it is important toensure Germany continues its energy security and continues to be a top global exporter. Althoughindustry makes up the majority of the energy consumption, it is slowly decreasing. The same is true forresidential and commercial energy usage, mostly due to new energy efficient technologies. Recently, thegovernment has instituted groups of laws to further drive this trend of efficiency and decreasedconsumtion. The current government policies that Germany is implementing to decrease its energy

intensity shows that they are taking the correct course of action to limit their carbon emissions. This can be proven by analyzing their yearly energy usage, and seeing the decline in the use of fossil fuels eachyear. Much of this can be attributed to their very successful use of renewable resources. As theirrenewables have increased over the years, the use of fossil fuels has declines drastically as a result. Theircontinued focus on this could very well help them reach their goal of a 20% drop in carbon dioxideemissions. Also, their diversified and flexible supply infrastructure, consisting of many cross border pipelines for both oil and natural gas, allow them maintain high confidence in their ability to remain verystable in regards to energy security. Germany is, and will continue to be a model country in terms ofenergy efficiency due to their long-term sustainability goals, and current energy implications.



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References

[1] OECD. N.p.. Web. 19 Feb 2014. <http://www.oecd-ilibrary.org/economics/country-statistical-profile-

germany_20752288-table-deu>.

[2] Ahearn, Raymond, and Paul Belkin. "The German Economy and US-German EconomicRelations." Current Politics and Economics of Europe. 21.4 (2011): 311-342. Web. 19 Feb. 2014.

[3] World Bank. "Germany: Country at a Glance." The World Bank . The World Bank Group. Web. 19

Feb 2014. <http://www.worldbank.org/en/country/germany>.

[4] Great Britain Parliament. Environmental Audit Committee. Energy Intensive Industries Compensation

Scheme. Print.

<http://books.google.com/books?id=LhfOPULyCH0C&pg=PA16&lpg=PA16&dq="Germany" "energy

intensive industries" "EEG"&source=bl&ots=R-

KbxYo2pb&sig=hxJ4QgxUFKDxS6Mp1GCpMFsn1tM&hl=en&sa=X&ei=XlwFU7eiMYH70AHFnoH

YAQ&ved=0CDAQ6AEwAQ

[5] Jaffe, E. n. page. <http://www.theatlanticcities.com/commute/2012/10/5-reasons-germans-ride-5-

times-more-transit-americans/3510/>.

[6] Mure-Odyssee. "Energy Efficiency Trends." Energy Efficiency Profile: Germany. Odyssee-Mure, n.d.

Web. 19 Feb 2014.

[7] German Ministry of Economics and Technology. "Germany’s new energy policy". Federal Ministry of

Economics and Technology, n.d. Web. 26 Mar 2014. <http://www.efficiency-from-

germany.info/EIE/Redaktion/EN/PDF/germanys-energy-policy- brochure,property=pdf,bereich=eie,sprache=en,rwb=true.pdf>.

[8] "Germany Energy Outlook." International Energy Agency. N.p., 2012. Web.

<http://www.iea.org/publications/freepublications/publication/GermanyOSS.pdf>.

[9] McCown, Brigham A. "Germany's Energy Goes Kaput, Threatening Economic Stability." Forbes.Forbes Magazine, 30 Dec. 2013. Web. 16 Apr. 2014.<http://www.forbes.com/sites/brighammccown/2013/12/30/germanys-energy-goes-kaput-threatening-economic-stability/>.

[10] "What Exactly Is Germany's 'Energiewende'? | Germany | DW.DE | 22.01.2013." DW.DE . N.p., n.d.Web. 16 Apr. 2014. <http://www.dw.de/what-exactly-is-germanys-energiewende/a-16540762>.

[11] "U.S. Energy Information Administration - EIA - Independent Statistics and Analysis." Germany. N.p., n.d. Web. 16 Apr. 2014. http://www.eia.gov/countries/country-data.cfm?fips=GM&trk=m

[12] "Germany." Marcon International, Inc. N.p., n.d. Web. 16 Apr. 2014.<http://www.marcon.com/print_index.cfm?SectionGroupsID=51&PageID=391>.

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Germany Executive Briefing Paper