Germany's CO₂ emissions fall to record low

01/04/2024

Source: Agora Energiewende

In 2023, CO₂ emissions in Germany fell to their lowest level in 70 years. A large part of the reduction is due to an unexpectedly sharp decline in coal consumption. At the same time, emissions fell at the expense of energy-intensive industry due to declines in production caused by the economy and the crisis. The German government must close the gaps in climate policy in 2024 to achieve lasting emission savings - particularly in the transport and building sectors.

Berlin, 04 January 2024. In 2023, Germany's greenhouse gas emissions fell to 673 million tons of CO₂*. This means that emissions fell by 46 percent compared to the reference year 1990 - and fell to the lowest level since the 1950s. At the same time, CO₂ emissions were around 49 million tons of CO₂ below the annual target of 722 million tons of CO₂ derived from the Climate Protection Act. This is shown by preliminary calculations by Agora Energiewende, which the think tank presented in its assessment of the energy year 2023. Two main developments were responsible for the decrease of 73 million tons of CO₂ compared to 2022: Firstly, coal-fired power generation fell to its lowest level since the 1960s, saving 44 million tons of CO₂ alone. The reasons for this were a significant drop in electricity demand, increased electricity imports from neighboring countries - around half of which came from renewable energies - as well as a decrease in electricity exports to the same extent and a slight increase in green electricity generation. Secondly, emissions from industry fell significantly. This was due in particular to the decline in production by energy-intensive companies as a result of the crisis and the economic situation. While overall economic output shrank by 0.3 percent according to preliminary figures, energy-intensive production fell by 11 percent in 2023.

According to Agora's calculations, only around 15 percent of the CO₂ reduction are long-term savings, which primarily result from the expansion of renewable energies, efficiency increases and the switch to lower-CO₂ or climate-friendly fuels or alternatives. According to the analysis, around half of the reductions in emissions are due to short-term effects, such as crisis-related declines in production and lower electricity consumption. The think tank therefore points out that the majority of the emission reductions in 2023 are neither sustainable in terms of industry nor climate policy - emissions could rise again due to the economic situation or parts of industrial production could shift abroad in the longer term.

CO₂ emissions from buildings and transport remained almost unchanged in 2023 - meaning that the sectors missed their climate targets for the fourth and third time in a row respectively. With the lack of emission reductions in these two areas, Germany is likely to miss its European climate targets from the Effort Sharing Regulation as early as 2024. The German government will have to compensate for such a shortfall by purchasing emission allowances from other EU member states - otherwise it will face penalties.

"2023 was the year of two speeds in climate protection in Germany: with the historic high in renewable energies, the energy industry recorded a climate policy success that brings us closer to the 2030 target," says Simon Müller, Director of Agora Energiewende Deutschland. "However, we do not see a sustainable development in the reduction of emissions in industry. The slump in production caused by the crisis is weakening Germany as an industrial location. If emissions are merely shifted abroad as a result, nothing will be gained for the climate either. The building and transport sectors are also lagging behind in terms of structural climate protection." In order to permanently replace CO₂-intensive power generation in the electricity mix, the positive momentum in the expansion of renewables must be further strengthened in the coming year. Industry needs adequate framework conditions in order to be able to invest in Germany - for example in climate-neutral steel production and the switch from gas to electricity for process heat. In the buildings sector, the implementation of the agreed measures must be consistently driven forward in 2024. And in the transport sector, the political course must be set for the breakthrough of climate-friendly mobility.

Coal on the decline, consumer prices recover

Emissions from electricity generation fell by 46 million tons of CO₂ to 177 million tons of CO₂ - more than halving compared to 1990. The 21% drop in emissions compared to 2022 is mainly due to the sharp decline in coal-fired power generation: Lower electricity production from lignite saved 29 million tons of CO₂, while the figure for hard coal-fired power generation was 15 million tons of CO₂. The Agora report cites three reasons for this development: Firstly, an extraordinary decline in electricity consumption of 3.9 percent compared to 2022 as a result of the fossil fuel crisis. Secondly, the strong renewable electricity generation across Europe meant that Germany imported more electricity instead of producing it in domestic coal-fired power plants. Over the course of the year, Germany sold around 58 terawatt hours of domestically generated electricity abroad and imported 69 terawatt hours. 49 percent of electricity imports came from renewable energies - primarily hydropower and wind power - and 24 percent from nuclear power. Thirdly, renewable energies recorded an increase in generation of 5 percent. Total emissions from the energy industry, which also includes refineries and district heating in addition to the electricity sector, amounted to 210 million tons of CO₂ and were therefore 46 million tons of CO₂ or 18% below the previous year's level.

Overall, the energy market eased in 2023 and both electricity and natural gas prices fell compared to the previous year. New customers in particular benefited from price reductions. Prices for existing customers remained high, as electricity providers generally pass on falling exchange electricity prices with a delay. Natural gas prices also fell in 2023, but remained above the pre-crisis level. "The price of electricity is more heavily burdened by levies and surcharges than the prices of fossil fuels such as oil and gas. This is slowing down the switch by households to climate-friendly technologies such as electric cars or heat pumps," says Müller. "A reform of the levy and apportionment system is necessary to redress the imbalance. The changes should make it possible for low electricity prices to reach consumers in times of high wind and solar power generation."

Renewable energy share exceeds 50 percent for the first time thanks to solar boom

Record levels of solar installations also contributed to the falling electricity prices - 14.4 gigawatts of photovoltaics were added last year, which was 6.2 gigawatts more than at the peak in 2012. Although there were fewer hours of sunshine in 2023, solar installations produced 61 terawatt hours, one terawatt hour more electricity than in the previous year. The expansion of photovoltaics was therefore well above the target path for 2030. Wind energy generation also recorded a record year. This was due to favorable weather conditions and a slight increase in the number of wind turbines. At 138 terawatt hours, wind remained the largest source of electricity and produced more electricity than the sum of Germany's coal-fired power plants (132 terawatt hours). However, the expansion of onshore wind power was significantly too low at 2.9 gigawatts. In order to achieve the statutory expansion targets for 2030, the annual expansion must increase to an average of 7.7 gigawatts from 2024. Permits, on the other hand, increased: At 7.7 gigawatts, the output of approved wind projects increased by 74 percent compared to 2022. Overall, renewable energies achieved a share of over 50 percent of total gross electricity consumption for the first time in 2023.

Industry between crisis and awakening

The industrial sector also recorded significant decreases in emissions in 2023: based on preliminary energy consumption and production data, Agora calculated a reduction of 20 million tons of CO₂, or 12 percent compared to 2022. With total emissions of 144 million tons of CO₂, the sector clearly exceeded the annual target of 173 million tons of CO₂. This means that industrial emissions have fallen to their lowest level since they were recorded in 1990. "The consequences of the fossil fuel crisis and the economic slowdown were particularly evident in the CO₂ emissions of energy-intensive industry," says Müller. An important factor in the slump in production was the continuing price increases in the European gas market due to the switch from cheap pipeline gas to more LNG imports.

"In order to be successful in the competition between locations on the path to climate neutrality, companies in Germany urgently need financing and planning security for the switch from fossil fuels to electricity-based processes," says Müller. The aim is to secure important value chains locally and at the same time achieve long-term emission reductions in industry. Achieving the expansion targets for renewables is also essential for this. Müller considers it positive that Germany and the EU have set an important industrial policy course for 2023, such as strengthening European emissions trading, agreeing on CO₂ compensation payments for raw material imports into the EU and climate protection agreements to finance the industrial transformation towards climate neutrality.

Transport and buildings continue to fall further and further behind their climate targets

CO₂ emissions in the transport and building sectors remained stagnant in 2023. The sectors therefore continue to fall well short of their climate targets. Instead of the legally prescribed maximum amount of 101 million tons of CO₂, buildings caused 109 million tons of CO₂. This means that the building sector missed its annual target for the fourth time in a row. Compared to the previous year, emissions fell by 3 million tons of CO₂. This was mainly due to the fact that households with gas heating continued to save energy, particularly in the first quarter, and heating requirements were lower due to mild temperatures. Overall, households consumed 4% less natural gas in 2023 compared to the energy crisis year 2022. However, there were signs of a slight increase in household heating consumption in the fourth quarter.

"Now that the political course has been set with the new heating law and the law for municipal heating planning, it is important to implement it consistently. This is the only way to finally effectively reduce emissions in the building sector," says Simon Müller. At the same time, heating with fossil fuels will become increasingly expensive in the future, at the latest with the start of European emissions trading for buildings and transport in 2027. "The federal government must also comprehensively support its heating policy with the new budget situation so that all income groups can afford climate-friendly heating."

For the third time in a row, the transport sector failed to meet the sector target set out in the Climate Protection Act. Emissions fell by just 2 percent compared to 2022. According to Agora calculations, transport in Germany emitted 145 million tons of CO₂, which corresponds to a reduction of just 11 percent compared to 1990. This means that traffic emissions exceeded the legal limit of 133 million tons of CO₂ by 12 million tons of CO₂. The target of 15 million electric cars by 2030 remains a long way off: as in the previous year, the proportion of new registrations of electric cars remained unchanged at just under 20 percent. According to the Agora study, a coherent overall concept is needed to put transport in Germany on a climate protection course. This includes adjusting taxes, levies and subsidies relating to cars, securing the expansion of local public transport and making it easier for local authorities to implement the transport transition locally through modern road traffic legislation.

Emissions from agriculture amounted to around 61 million tons of CO₂ in 2023, falling short of the climate target for the sector of 67 million tons of CO₂. One of the main reasons for this shortfall is the change in the method used to calculate nitrous oxide emissions. This leads to lower greenhouse gas emissions in the statistics, but this has not yet been reflected in an adjustment of the sector target. The reduction in greenhouse gas emissions by around one million tonnes of CO₂ compared to 2022 is mainly due to the decline in pig and cattle stocks and a reduction in nitrogen fertilization

Financing climate targets needs a solid foundation after the Karlsruhe budget ruling

Despite the reductions compared to 2022, there is still a significant gap in achieving the 2030 climate targets. The introduction of additional climate protection measures in 2024 is key to closing this gap. In addition, financing for climate protection measures has become more difficult following the Karlsruhe budget ruling. "Germany needs an investment offensive to achieve its climate targets," says Müller. State funding is needed for climate-neutral heating systems and the transformation of industry, for example. Significant investments are also needed in the area of electricity, heating and hydrogen grids. "In 2024, the German government will be faced with the task of finally reliably securing the necessary investments for climate neutrality. A smart mix of instruments can ensure that we achieve more climate protection for every euro from the public purse."

The study "The energy transition in Germany: state of play 2023" summarizes the key developments on the energy transition and climate targets over the past year and is available for free download at www.agora-energiewende.de .

Author: Janne Görlach