Germany should provide time frame for fossil gas exit to give industry investment certainty – IEA

Germany needs more clarity on the future role of fossil gas in its energy system to allow industry to make the right investment choices, said the International Energy Agency (IEA) in a report.

“Clarification on the natural gas exit ramp for the industry sector, including time frames, would provide industry with the certainty needed to make future-proof investments, including in required import infrastructure (for both natural gas and hydrogen) and industrial clusters,” the IEA said in its German energy policy review.

In addition, the country should help the sector deal with high costs for fossil gas through a more concerted effort to promote energy efficiency and electrification in the short term, along with a push for hydrogen and carbon capture and use or storage technologies (CCUS) in the longer term. However, “at present, the continued dependence on natural gas remains without a clear end in sight,” said the report. However, it added high CO2 prices in the EU Emissions Trading System (EU ETS) will eventually spell the fossil fuel’s end.

The IEA took a cross-sector look at the transformation of Germany’s energy system towards renewables and warned that while the country has made some headway, a lot still needs to be done. This included expanding the electricity system, lowering energy prices and reducing emissions in end-use sectors, such as transport, buildings and industry.

Other recommendations included incentives for people to switch to more climate-friendly transport options, as the sector has been lagging behind and was designated a “key area for additional focus.” The agency also recommended introducing measures to lower retail electricity prices, expanding large-scale energy storages, speeding up the smart metre rollout as well as overall ensuring more long-term policy and regulatory stability.

Germany’s energy transition is well underway with the expansion of renewable energies, the finalised exit from nuclear energy and the planned phase-out of coal by 2038 at the latest. Although fossil gas must be largely phased out by 2045, when Germany aims to become climate neutral, there is no agreed timetable for transitioning away from the fuel. The country has an extensive gas pipeline network, and the discussion about decommissioning it has been brewing for a while, with the government launching the planning last year. Some cities in the country have started to announce plans for phasing out their local gas heating grid in the mid-2030s.