September 26, 2017 / 9:55 AM / a year ago

Breakingviews - German vote bodes ill for utilities and autos

LONDON (Reuters Breakingviews) - Germany’s new electoral landscape promises upheaval for companies as well as politicians. Chancellor Angela Merkel faces tricky coalition negotiations after Sunday’s inconclusive elections. Organising a parliamentary majority requires simultaneous support from the pro-business Free Democrats and the Greens. The environmental party’s inclusion would be good news for Germany’s emission-reduction ambitions, but may hurt carbon-guzzling utilities and automakers.

A BMW sedan is displayed for sale at a BMW dealership in Goyang, north of Seoul June 12, 2013. REUTERS/Lee Jae-Won

Merkel may have persuaded leaders of other rich countries to agree two years ago to phase out fossil fuels by the end of the century but has failed to do enough of her own homework. Germany pledged to cut carbon emissions by 40 percent by 2020 from 1990 levels. They were 28 percent lower in 2015 but rose rather than fell the following year, according to the German Environment Agency. That makes the 2030 commitment to lower emissions by more than half from 1990 levels an even bigger stretch.

One culprit is energy, a quarter of which is produced using brown coal, which generates twice as much carbon as gas for each unit of electricity that is produced. The fuel accounts for half of the German energy sector’s carbon emissions. Yet there is ample unused generation capacity in plants which use much cleaner materials.

The second offender is transport, whose carbon emissions have fallen by only around 3 percent since 1990. Engines became cleaner but also grew bigger. Traffic volumes have also risen.

The Greens want the use of brown coal to be phased out more quickly and a ban on the sale of new cars with internal combustion engines by 2030. The first policy would hit RWE, whose shares fell more than 5 percent on Monday, and unlisted eastern German utility LEAG. The second would dent the German auto sector, which is still wedded to the internal combustion engine and behind the curve on electric vehicles.

Both industries have so far successfully campaigned for a slow transition to a cleaner future. Their arguments will fall on less receptive ears if Merkel’s new coalition acquires a green hue.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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