The coal dilemma

The coal dilemma

In mid-April, state-owned Vattenfall confirmed reports that it intended to sell its German lignite coal operations to Czech energy company EPH. Critics of Vattenfall’s move believe the government should halt Vattenfall’s divestment and push for the German coal power plants to be phased out instead. The deal, which is pending approval from the Swedish government, further added to the Green Party’s political headache.

“Vattenfall to sell German lignite operations,” read the headline of an 18 April press release from the energy company. A more accurate description would have been that Vattenfall wants to sell, as the deal is subject to approval by the government. According to the Minister for Enterprise and Innovation, Mikael Damberg (S), Vattenfall will have the government’s decision in a couple of months.

The sale of the German lignite – or brown coal – operations, reportedly attracted few bidders. A high profile bid from Greenpeace, which proposed buying the assets to close them down, was rejected. Finally an agreement was reached with Czech energy company EPH, along with Czech private equity group PPF Investments. Another Czech company, CEZ, withdrew after expressing initial interest. Vattenfall will sell all of it lignite assets in Germany; including power plants Jänschwalde, Boxberg, Schwarze Pumpe and Vattenfall’s 50 per cent stake in Lippendorf, as well as the open cast mines Jänschwalde, Nochten, Welzow-Süd and Reichwalde and the recently closed mine Cottbus Nord.

The coal operations represent about one-tenth of Vattenfall’s power production in Germany, where it is the third-largest energy supplier. But the sale comes at a price. The deal will mean a loss of at least SEK 22 billion for Vattenfall and the risk of the government being labelled a deserter on climate change. Still, retaining the assets could have meant even bigger losses – economically and politically: “This divestment of our lignite assets is good strategically but also financially given current and expected market conditions,” said Magnus Hall, President and CEO of Vattenfall, at the press conference.

Reducing the carbon footprint

While the deal is negative for the profit and loss line, Vattenfall will be reducing its carbon footprint quite dramatically. According to Vattenfall, the sales had been driven by both the risk of power prices staying low (German power prices have fallen by around 40 per cent since Vattenfall launched the sale in 2014) and by its strategy to reduce exposure to CO2 emissions. “We want to reduce our CO2 exposure, so for us this is the right thing to do and it frees up resources to focus more on renewable energy,” Mr Hall was quoted as saying in the press release. According to Vattenfall, the sale means more than 75 per cent of the company’s production will be climate neutral compared to about 50 per cent today. Vattenfall estimates its carbon emissions should fall to a level of 23 million tons per year from the current level of 83.8 million per year, making it one of the greenest utilities in Europe.

However, the sale of lignite assets in Germany has drawn criticism from environmentalists. The Swedish branch of Greenpeace said the plants should have been shut down and said the sale was a catastrophe for European climate policy and tarnished Sweden’s environmental reputation.[1]

A political meltdown?

The deal is still subject to the approval of the government. Mr Hall is nevertheless optimistic that the government will approve the sale and said Vattenfall expected to finalise the deal by the end of August pending government- and regulatory approval. Still, according to the Minister for Enterprise and Innovation, Mikael Damberg (S), such a decision will not be made for two months. However, Mr Damberg underlined that the government is well prepared and said the government was receiving help from external advisors, in what is a complex financial transaction. He added, “I am very anxious that this should not become some kind of Nuon process.” (Vattenfall’s 2009 purchase of Dutch energy company Nuon is considered to be one of the worst in the history of Vattenfall and was strongly criticised from the start. For further background, refer to the April 2014 edition of the MPR).

Environmental issues will be an important part of the decision when the government makes its analysis of the deal, according to Mr Damberg. But it is a business deal with two completely different environmental perspectives that the government has to consider: Vattenfall’s efforts to reduce its carbon dioxide exposure vs. the potential climate consequences of a sale. The Left Party and environmental organisations, such as Greenpeace, are sharply critical of a sale because it means an increased risk of new lignite mines being opened instead of the coal staying in the ground. The Green Party has traditionally been adamant about shutting down all coalmines in Germany operated by Vattenfall. While in opposition, the Greens called on the Alliance government to avoid allowing Vattenfall to sell the sites, arguing that the move amounted to encouraging other firms to continue producing emissions that harm the environment. During the 2014 election campaign, Green Party spokesperson, Gustav Fridolin, was known for bringing a piece of coal with him to political debates to use as a rhetoric prop.[2] Selling the coalmines, rather than shutting them down, is not a solution according to many within the Green Party as toxic emissions would continue, just under different management. That is why the party has traditionally wanted to keep possession of the coalmines, and oversee the process of completely shutting them down. A 2015 decision by the Green Party Congress, stated that the party wanted Vattenfall to shut down its coal operations in Germany, instead of selling them. However after entering into government, the Green Party has changed its stance and become more open to a sale by arguing that the sale could go ahead if buyers could demonstrate that their strategies included “tangible climate benefits”. The Minister for Climate and the Environment, Åsa Romson (MP), has said that the government must take responsibility both for taxpayers’ money and for making sure that Vattenfall can be a driving force in the transition to a climate-friendly economy and politics.[3]

At the end of April, the Green Party parliamentary group requested from the Speaker of the Riksdag a current affairs debate in the Riksdag on the topic of Europe’s lignite coal and the climate. A party can request that the Riksdag holds a debate on topical subjects. In consultation with party group leaders, the Speaker then decides if and when such a debate is to be held. The cabinet minister responsible for the issue will participate in the debate (in this instance the Minister for Enterprise and Innovation, Mikael Damberg). In its request for a debate, the Green Party writes that there is still much coal burnt in Europe and that, to the Green Party, it is of the utmost importance that the coal stays in the ground. The Greens therefore sees a great need to get clarification regarding the Riksdag parties’ position in the matter, the request stated. The Greens have made the assessment that for the government to be able to reject the sale of Vattenfall’s German lignite operations, a Riksdag majority to change Vattenfall’s ownership directive -adopted by the Riksdag in 2010 – is required. Therefore, the party has requested a parliamentary debate to clarify the stance of the political parties.

The former Alliance consensus around Vattenfall’s German coal operations is starting to frizzle at the edges. The Liberals still want Vattenfall to sell German coal power, but not at any financial and environmental cost. The Liberals also believe that the issue should pass the Riksdag in some form. The Centre Party, however, does not consider that the Vattenfall-EPH proposed deal is a matter for the Riksdag: “It is important to point out that the sale is ultimately a matter for the board and the owner, and the way the rules are for the state-owned companies looks, it is the government that is responsible,” said MP Helena Lindahl (C) during a recent Riksdag debate. Furthermore, the Centre Party is also firmly convinced that the German coal, “which should never have been bought,” should be sold. The Sweden Democrats and the Liberals are of the opinion that Vattenfall’s German operations should be sold, but not at any financial- and environmental cost. The Christian Democrats’ meanwhile believe that the sale should include conditions. The Moderate Party argues that is the task of the government to make an assessment whether the sale shall be determined by the Riksdag. Such an assessment should not be made on the basis that it is a politically sensitive issue, but based on the owner’s directives and the regulatory framework available regarding the control of state-owned companies. Lars Hjälmered energy policy spokesperson for the Moderates, underlined that the party, “…will not use it in any political games”.[4]

Comment

There is no doubt, however, that political games will be played at the Green Party congress in May. The issue of the coal is loaded and there will most likely be an internal battle when the party gathers in mid-May. There is a clear split in how different Green Party members and districts see this issue. Some are calling for cooler heads, realising that any party in a government position must compromise, while others maintain that the mines must be shut down, no matter what. Some of the party heavyweights – like former spokesperson Maria Wetterstrand and MP Carl Schlyter – have strongly and loudly criticised the sale.[5] The actions of Vattenfall are also putting more pressure on the already weak red-green government, as Vattenfall’s coal burning operations are heating up the climate within the cabinet offices. The Green Party leadership is keeping a tight lip and Mikael Damberg keeps referring to the upcoming announcement on the government’s decision – due in two months. However, should the Speaker decide to approve the Green Party’s request for a current affairs debate on Europe’s lignite coal, the parties would need to clarify their stance on the controversial issue.

[1] http://www.greenpeace.org/sweden/se/press/pressmeddelanden/Vattenfall-saljer-brunkol-till-tjeckiska-riskkapitalister/

[2] https://www.youtube.com/watch?v=HUy9oHrCXz0

[3] http://sverigesradio.se/sida/artikel.aspx?programid=83&artikel=6261655

[4] http://www.altinget.se/artikel/liberalerna-oppnar-for-att-behaalla-tyskt-kol

[5] http://www.svd.se/efter-brunkolsaffaren–nu-vantar-internstrid-i-mp/om/vattenfall-saljer-tyska-brunkolen

Tagged , .

Jessica Nilsson Williams is the CEO & Founder of Mundus International. She has a long-standing interest in international affairs, having studied and worked in the field for more than 20 years. She began her career as the political advisor at the U.S. Embassy in Stockholm, and then worked in London and Singapore before returning to Stockholm. In 2011 she took up a senior role at the New Zealand Embassy before founding Mundus International in 2012. In addition to working for foreign missions, she has worked in sectors such as NGOs and non-profit organisations (e.g. the Clinton Foundation and the International Red Cross), and television. Jessica is a Member of the Board of the Swedish Cricket Federation.