Case Study 3: Germany

Germany: Declaration by German Industry and Trade on Global Warming Prevention (1995) and Updated and Extended Declaration by German Industry and Trade on Global Warming Prevention (1996)*

3.1 Summary Information on EA

3.1.1 Sector Structure and Coverage

The 1996 EA covers 19 associations from a broad range of industry sectors, as listed in Table 3.1. Together they represent around 80 % of Industrial Energy Consumption and over 99% of public electricity production. Though some statistical and methodological problems are yet unsolved (regarding the targets, sector definition, and numbers counted twice), the 1996 EA contains four associations more than the 1995 EA and more associations are expected to join in the future. Not all signatories noted the level of representation or coverage of their sector in the EA declaration. Where available, data are noted in Table 3.1. Ideally the EA should note the number of companies, the share of the market, and the number of employees. This would allow the non-expert to interpret the importance of the EA more easily. Even now, not all sectors of the economy are covered; important sectors like those of investment and consumption goods as well as food are missing.

3.1.2 Institutional and Sectoral Aspects

As shown in Table 3.1, the EA signatories include some of the most important industries in Germany, representing thousands of companies and over a million employees.

Many of these associations have representatives in both the old states and the new, eastern states where there has been significant plant closure, refurbishment and new plant creation. This activity has led to significant reductions in energy consumption, energy efficiency improvements and CO₂ reductions. These changes clearly are not the result of explicit initiatives to reduce CO₂; they are due to attempts to meet national and association targets and are better seen as a result of German unification (sometimes called ‘wall-fall’ gains). This has important implications for target setting and for assessing whether these are easy to meet or not (see Section 3.7).

In addition, many of the large companies have subsidiaries in other sectors and are active in mergers and acquisitions. This can be important for issues of sector classification, the setting of targets and the appraisal of performance against targets, especially over longer stretches of time.

Finally, a further institutional issue in Germany is that of local and regional monopolies in energy supply. Each monopoly can generate and distribute energy. This can lead to inefficiencies where supply exceeds demand and captive markets mean that there is less incentive to increase generation efficiency. The EU is, however, committed to the development of the internal energy market and this is expected to increase competition and, therefore, to improve the efficiency of energy production and distribution, with possible energy and CO₂ gains.

Table 3.1: EA Association Coverage – 1996 Revised and Updated EA

Source: EA (1996), Updated and Extended Declaration by German Industry and Trade on Global Warming Prevention: BDI, Cologne, Germany

* The VIK has acquired a number of new members recently, including the German Industry and Trade Congress, the Association of Technical Inspectors and Organisations, and the Federal States Organisations.

3.2 Background and Context

3.2.1 The Country Context

History of Environmental Regulations, Environmental Policy Approach

Environmental regulations are all more or less in place in Germany and recent interest has been moving towards the use of alternative instruments, such as environmental taxes and charges, the EMAS scheme and voluntary measures, such as labelling o0 specific environmental agreements (or, as some prefer to call them, negotiated agreements). Furthermore, the development of regulation and instruments to address environmental concerns has taken place within the context of regular discussions between government bodies (national, regional or local) and industry.

3.2.1.2 History of Environmental Agreements in Germany

The interest in EAs started in Germany in the 1970s. Around 60 EAs have been signed to date (including the EA being examined here). Nearly all (around 90%) of previous German EAs were product-focused beginning with the EA on CFCs and dangerous substances, whose success was facilitated by the limited number of producers (only one in three) involved. The need for EAs in Germany should be seen in the context of a number of factors:

• while regulations are in place for most important environmental issues and there is general compliance, there is a need for EAs to encourage companies to go beyond regulatory standards;
• passing regulations for all products can become burdensome for industry; one cannot for example, deal with all of the 20,000 chemicals produced by German industry through regulation;
• there is a need for an instrument to encourage a greater sense of shared responsibility between Government and Industry so as to maximise benefits and develop a self-sustaining, pro-active attitude towards the environment on the part of industry.

3.2.2 The Environmental Issue

The Climate Change EA responds to the threats of global warming, and is a key element in Germany’s promise to meet its nation-wide CO₂ emissions reductions targets of 25% reduction (with respect to the level in 1990) by 2005 which was agreed in Berlin, and resulted from the Rio Declarations. It is especially important to Germany to meet its targets as it will be acting as an example to the rest of the industrialised world (German targets are the tightest), and also as a statement to the developing world that Germany is serious about carrying out its share of reductions and embracing the special responsibility that industrialised nations have with regard to the level of CO₂ in the atmosphere: current and short-term projected rises are attributable, mainly, to existing CO₂ emissions levels in the industrialised countries.

3.3 Negotiation of the EA

3.3.1 Parties Involved in the Negotiations

The idea of an environmental agreement to address the climate change problem was first discussed between the German government and industry sectors in 1990/91. The associations involved at this stage were the VDEW (electricity), the VIK (energy and power) and the VCI (chemicals). These associations represented the main energy suppliers and users, and so were the most important in addressing the climate change problem, and had the most to ‘lose’ if the discussed carbon/energy tax was to be introduced.

As it became clear that an agreement could in, principle, be reached, other parties, including the BDI (the German industry association), were brought in. Given the BDI’s role of representing most sectors of German industry, it was, in 1995, given overall control of the development and negotiation of the EA. Fifteen associations were party to the agreement in 1995, and a further four joined in 1996.

During the negotiations towards the first version of the EA, the level of public participation was low; only the associations and the Ministries of the Environment and Economics were involved. Neither NGOs, Länder nor Municipalities had a role in the negotiation of the 1995 EA. The reason cited for this is that it was felt that involvement of additional bodies like these would slow down the negotiation process. At this stage, therefore, the only role these parties had was to comment on or criticise the EA when its contents were made public. In fact, the publication of the 1995 EA led to significant public criticism, especially by NGOs (both environmental campaign groups and research institutes). This contributed to the introduction of a number of positive changes (which are discussed in Section 3.5).

3.3.2 Reasons for Participation and Expected Benefits

From the company perspective, the main reasons for joining the EA were:

• signing the EA would ensure that the waste heat ordinance would not come into force;
• signing the EA would ensure that the carbon/energy tax would not be levied;
• individual associations tied their commitments to the above conditions and to special conditions which could increase their influence over government policy decisions.

From the government perspective, the main reasons were:

• to be able to offer a serious instrument demonstrating the commitment to meeting the national CO₂ targets;
• to find a mechanism that would not burden industry, which was already burdened by significant regulation, high energy costs and tax rates (especially given the special Unification tax).

The expected benefit was, therefore, that industry would reduce emissions of CO₂ and help to meet the national targets, while not being burdened by the costs of an inflexible approach to meeting these targets.

3.3.3 The Negotiation Process

3.3.3.1 Overview

While the discussions on EAs started around 1990, it was only with the growing expectations of the Rio Conference/UNCED, that the climate change issue assumed greater political significance and governments started to look seriously for solutions, particularly in the form of a carbon/energy tax and the use of Environmental Agreements. Industry associations discussed the EA alternative to the carbon/energy tax with the government. These discussions were initially very positive, but the momentum towards agreement was not sustained. However, with the impending Berlin Conference in 1994, the need for tabling some German proposal led to renewed interest, and ultimately offered sufficient incentive to reach an agreement (Table 3.2).

Table 3.2: Chronology of Climate Change EA Negotiation

3.3.3.2 BDI Perspective

After prolonged contacts and discussions, the Government started the process of negotiating the EA with the BDI and external associations (such as the VDEW and VCI). This is in line with the German consensus approach to business regulation.

To meet the timetable, there was a need for the associations to get support from their members. The EA was attractive because it offered flexibility, whereas a tax would not.

The targets were agreed on the basis of reduction in specific energy use and specific CO₂ emissions and not for absolute emissions or energy consumption. It was felt that this was more realistic as companies would know more about the efficiency of production processes than about future market shares. The initial targets agreed reflected the anticipation of possible efficiency gains and other emission reductions measures by the member companies involved.

3.3.3.3 Ministry of Environment Perspective

The Ministry of the Environment was the first promoter of the CO₂ EA and had the first contact with the associations. The Ministry of Industry was then brought into the negotiations. The EA should be considered against the backdrop of 10 years of negotiation on the carbon/energy tax. In the Ministry there are two separate positions on appropriate instruments for reducing CO₂ – the traditionalist (regulations, standards etc.) and the EA/collaborative/consensus positions. The latter position was accepted: it was decided that the EA would be the instrument to help meet the German CO₂ reduction targets set by Helmut Kohl (a 25% reduction from 1990 to 2005).

The aim of the EA was to create a process. The aim was not to have a 1995 statement that would be binding until the year 2005 (though it was not clear from the associations that they held the same view). The EA is a dynamic process, a continually developing tool.

This EA is a gentlemen’s agreement, with no particular requirements at the company level. This sets it apart from the Dutch system, and indeed, from the current Commission recommendations/framework.

3.3.4 Future Issues in Negotiation

The Government regard this EA as a process and intend to offer regular revisions incorporating new elements to improve the EA and respond to public comment/criticism. To date, (see Sections 3.6 & 3.7) significant public criticism has been offered and several items of it have already been incorporated into the 1996 revision of the EA (see Table 3.3). However, even the new EA has been criticised (e.g. Wuppertal Institute 1997), and some of these criticisms are likely to be taken into account in future revisions.

The government already envisages that the EA will be revised again in 1997, with a special focus on joint implementation. It will also move more towards product-specific measures and targets (especially for the production of potentially CO₂-saving goods for other sectors, such as households) e.g. better insulation. The government also aims to include other associations in the agreement, for example, the Association of Household Appliances (ZVEI). They are also looking into the idea of including electricians` and boiler workers’ associations and the communication and transport sectors in the agreement. Further ideas on how to improve the EA are given in Section 3.8.

Table 3.3: Targets, Energy and CO₂ Emission Shares of the Associations

Source: EA (1996), Updated and Extended Declaration by German Industry and Trade on Global Warming Prevention, BDI, Cologne, Germany

3.3.5 Barriers to EAs

3.3.5.1 Ministry Perspective

The main barriers to the acceptability of the climate change EA were:

• some of the public tended to feel that, because it is not a parliamentary law, it is unlikely that the targets will be met;
• the EA goes against the ‘polluter pays’ principle, which would favour a carbon/energy tax;
• the EA is, a priori, much less of an incentive mechanism than carbon/energy taxes.

In addition to these barriers to the EA, both the 1995 EA and the 1996 EA have been subject to a series of criticisms by serious research institutes such as the ZEW, ifo, Wuppertal institute and RWI. These are discussed in Section 3.6.

3.3.5.2 BDI Perspective

The main barrier to the commitment of the companies was the level of trust in the government: some associations feared that opting for an EA would result in having an EA plus a carbon/energy tax, rather than an EA instead of a carbon/energy tax. This lack of trust was overcome by those promoting the EA alternative.

3.4 Structure of EA and the Targets

3.4.1 Coverage of the EA and Free-Riders

The EA coverage of companies and turnover is presented in Table 3.3. In most cases, the associations represented a majority of the companies. This implies that there was little potential for industry-specific free-riders outside of the particular association. There remains potential for free-riders only from non-signatory sectors, and from companies within signatory associations who do not contribute their ‘fair share’ to reducing CO₂ emissions.

There are no explicit measures in the EA to address the problem of free-riders. The view is that public pressure and environmental awareness is such that most companies will take part in the agreement. To be seen not to embrace this initiative is regarded, by all the expert interviewees, as having negative effects on the company and this is a real incentive for companies to show that they are making CO₂ improvements.

A potential measure to address free-riders, is to implement the carbon/energy tax – but at a reduced or even zero-rated level for all signatories and at a higher level for non-signatories of the EA. If there is an EU-wide carbon/energy tax, then the German government will ensure that only the EA member companies are exempt. This should ensure that free-riders are not rewarded. It also demonstrates a possible complementarity between EAs and environmental taxation. This combination of different environmental policy instruments should be explored further.

3.4.2 Targets

1995 EA: The initial target was up to a 20% reduction in specific CO₂ emissions by 2005, with reference to 1987. Only one association (the VCI) offered total targets (energy consumption and CO₂). Other associations offered only specific reduction targets.

The overall target was decided by the BDI plus the partner associations – the BDI cannot dictate to the member associations and the associations cannot dictate to their members. The choice of target reflects an understanding of the level of reductions possible. The target is not far from the government intentions to reduce absolute emissions by 25% by 2005.

1996 EA: The overall target is for a reduction of 20% of specific CO₂ emissions or specific energy consumption by 2005, with respect to emissions in 1990. This total target is an estimate of the achievable target for all the associations who are party to the agreement. There are no individual targets set for companies. Target levels were set by the Industry Associations, and there appears to have been little negotiation to tighten the targets or to agree some scheme for target-sharing. Table 3.4 gives the targets set by each of the associations under the 1996 EA. Twelve of the associations have since adopted total re-duction targets in response to public criticism.

3.5 Implementation

3.5.1 Measures Taken to Improve Energy Efficiency and Reduce CO₂ Emissions

3.5.1.1 Overview

There is no explicit set of company level measures that are to be embraced. At the association level, the range of measures/ initiatives to be taken vary considerably depending on the association and the sector. Sections 3.5.1.3 and 3.5.1.4 show the measures for two of the key sectors. For further measures see BDI (1996).

3.5.1.2 Government Perspective

Government says that it does not want a business-as-usual approach. It wants a ‘No-Regrets Plus’ approach. It is important that there is some actual additional effort as a quid pro quo for the benefits to industry from the delay in the introduction of the carbon/energy tax and the waste heat ordinance.

To ensure that the EA is taken seriously, the government emphasises that it is prepared to introduce significant regulatory measures if it believes that the EA is not being taken seriously by industry. Notably the government stated that it would not hesitate to ‘use regulatory and fiscal instruments’ if it emerged that the pledge given by the business community was complied with or amounted to little more than a ‘business-as-usual’ approach (BMU, 1995, in Rennings et al., 1996).

Examples of additional costs/initiatives include:

• dialogue and monitoring costs;
• information/awareness campaigns and specific information dissemination;
• bench-marking workshops;
• training of staff;
• additional, real additional cost measures (RES, JI)
• energy auditing (some associations to support addition auditing as a monitoring measure);
• setting up of a new institute in Leipzig. – ITOT (International Environment Technology Transfer Centre).

3.5.1.3 VDEW

As noted in the EA Document (BDI, 1996), about ten initiatives, aimed at ensuring that CO₂ emissions reach the targets set, are underway. A number of these are measures that would have been implemented even without the EA, though the scope and impact of some of them have been extended by the EA. The measures include:

• Demand side management measures (DSM), in particular the production of DSM guidelines by the VDEW for its 900 Members. While the large companies are aware of most of their saving potential (RWE, PreussenElektra etc.), many of the smaller ones are not. Together with RUE measures, DSM should lead to 15 mt CO₂ savings by 2005;
• 5mt of CO₂ target for efficiency improvements (RUE measures) up to 2005. There was already an associated reduction of 8mt in the 1993-96 period;
• New power stations – with the government setting efficiency levels at 45% for hard coal and 42% for brown coal, net of own use and including FGD use, which is expected to lead to around 40mt CO₂ savings;
• Increased focus on renewable energies – through R&D, domestic investment and use and imports (hydro-electricity from Sweden) – which is expected to lead to more than 10 mt CO₂ savings;
• Joint implementation - seven pilot projects have already been initiated (the Climate Secretariat in Geneva recently noted that, in all, 32 joint implementation projects have been undertaken. Seven of these are in Germany, all of them organised by the VDEW);
• Dissemination of information and thematic workshops;
• A quasi-measure/requirement that the government does not opt for early retirement of nuclear plant. This will offer a further 25mt CO₂.

Specific EA initiatives:

• Joint implementation – specific initiatives/ projects and workshops/workgroups;
• More detailed monitoring and reporting;
• DSM – earlier and more comprehensive initiatives, especially the production of guidelines which are sent to all members;
• Some new RES;
• Awareness campaign –through the monthly VDEW publication, VDEW Contact, that is sent to all members;
• Workshops, e.g. on climate change/CO₂ –with around 100-200 participants;
• one- or two-yearly know-how transfer workshops between groups –involving around 10-20 practical experts with the results being sent to all members by the VDEW.

3.5.1.4 VCI Initiatives

Special initiatives include:

• Creation of useful case study material for use as examples to encourage other companies to adopt similar practice;
• Information campaigns, press releases, and dissemination of information on good practice and the importance of EAs – e.g. through their Monthly report, Chemie Report;
• Workshop and seminar organisation and presentations;
• Monitoring;
• EA discussed at last members’ meeting.

3.5.2 Communication and Target-Sharing Between Partners

There is no explicit target-sharing between associations or between companies within associations. The associations have each set targets that they feel can be reasonably met, and there appears to have been no negotiation of targets between associations, which would imply some type of target-sharing. Each association is bearing the cost of its own specific measures.

3.5.3 Monitoring and Reporting

3.5.3.1 Overview

In the 1995 agreement there was no provision for monitoring. But following public criticism, monitoring initiatives were included in the revised 1996 EA. The explicit monitoring requirement in the 1996 agreement entails detailed reporting of CO₂ emissions from the fossil-fuels used. This is to be carried out from calculations of fuel inputs to the power sector, based on data gathered from statistical offices, rather than by all 900 companies reporting their CO₂ emissions separately. This reporting is annual and on a calendar basis. Furthermore, it will be verified by an independent external expert from the RWI, a recognised institute.

Every company with more than 20 people has to report its energy use to the Statistisches Bundesamt and the Statistisches Landesamt – in addition to reporting basic economic data. The data collected and analysed at the Landesamt will be used as a basis for the calculation of CO₂ emissions (This differs from the Dutch model where there is a bottom-up questionnaire). This calculation will be carried out by the BDI, and verified by independent agents, the RWI. The monitoring report will be available to the public.

3.5.3.2 Limitations to Monitoring Possibilities

There are three main limitations to the possible monitoring of the CO₂ results:

• In the new Bundesländer, the statistical approaches to defining sectors of industry is different from that used in the old Bundesländer;
• Many companies in Germany are active in mergers and acquisitions and in selling off parts of their businesses;
• The number of companies in the various sectors of the German economy can be very high.

3.5.3.3 Future Developments

While the current monitoring system is a big improvement on the complete lack of monitoring in the 1995 EA, there are still some concerns that it is not sufficiently transparent.

Consequently, in Cologne in November 1996, a workshop was held to try to formulate an improved monitoring system and it was decided to have a year by year report, which will help show whether the associations were in line with their targets and which could, in prin-ciple, lead to new targets and new initiatives.

3.6 Outcome

3.6.1 Progress Towards Meeting Targets

As the Climate Change EA was signed only in 1995 and 1996, and the first monitoring report will not be available until autumn 1997, there are currently few data available on the level of energy efficiency gains and CO₂ reductions for the EA signatories.

There are, however, data for part of the target period and for previous years. These can be used to determine whether it is likely that the targets will be reached, and indeed how tough the targets are (see next section). However, the data clearly offer no indication of the EA’s effect on energy efficiency and CO₂ emissions. Improvements to date are given in Table 3.5 (Section 3.7).

3.6.2 Benefits

3.6.2.1 To Companies

• No CO₂/energy tax implemented, though there is a threat of implementation if EA targets are not met;
• No waste heat ordinance implemented but the threat remains;
• Investment in energy efficiency in line with investment cycle;
• Energy savings through greater awareness of possibility to make savings;
• Specific condition clauses incorporated into EA.

To date, no licensing benefits have accrued from participation in an EA.

3.6.2.2 To Government

The EA is regarded as being faster than the law making process and as increasing the level of dialogue between government and industry. It will probably develop its own momentum as a result of the clear economic benefits of implementing ‘no-regrets’ strategies: the development of new markets, and the potential value of an image of green corporate responsibility.

3.6.3 Spin-Offs

Apart from those listed above, there are likely to be the following additional benefits:

• The experience of this EA might encourage the adoption of a joint implementation approach in future EAs;
• The framework of regularly updated EAs might allow the incorporation of other GHGs in the future;
• This climate EA has aroused interest abroad and could, conceivably, lead to similar efforts being adopted.

The EA is not, however, expected to offer real encouragement to the uptake of EMAS; German companies have for many years been carrying out environmental audits and implementing environmental monitoring and management systems. Part of this reflects their existing requirement to submit information on SO₂, NO_x and dust/particulate emissions to the local municipality. Some also voluntarily submit CO₂ emissions data.

3.6.4 Criticisms

In addition to the barriers mentioned in Section 3, the EA, especially in its 1995 version, has come under severe criticism.

Key Criticisms of the 1995 EA Have Included:

• No monitoring required in EA;
• Targets set by the associations: government or outside parties have no real influence;
• Targets couched in terms of ‘up to 20% reduction’;
• Targets set by most (all but one) association refer only to specific energy use and CO₂ emissions, rather than total emissions;
• Target reference date is 1987, not 1995;
• No intermediate targets, only for 2005;
• No independent verification;
• No means to ensure that companies take significant action;
• Companies do not have to monitor their own CO₂ emissions;
• The German Institute of Economics states (DIW, 1995, in E. Jochem & W. Eichhammer, 1996) that the CO₂ emissions reduction target envisaged by industry would be expected to be met without additional measures;
• The Wuppertal institute and others questioned whether additional measures in many branches/association were really indicative of further improvements (Wuppertal Institute, 1996, in E. Jochem & W. Eichhammer, 1996);
• East, west and total targets are not always clear so that advances which are due to the unification of Germany are not always distinguishable (sometimes calles ‘wall-fall’ profits);
• EAs of several associations are linked to conditions unlikely to be fulfilled by government (Wuppertal Institute, 1996).

Criticism of EAs in General:

• Lack of clarity about how intra-industrial structural change (E. Jochem & W. Eichhammer, 1996) will contribute to meeting the stated targets, and how much will simply reflect initiatives to improve energy efficiency; and, indeed, how many of the latter truly represent initiatives which go beyond a ‘business-as-usual’ situation(see later discussion in Section 3.7);
• Absence of real negotiated targets between government and industry and no provision for stakeholder participation until after targets have been set and published;
• The inclusion of condition clauses which may give the associations further influence over government environmental policy;
• The frequently low level of targets which may ensure that targets are reached but does not convince the public that real additional efforts will be made.

3.7 Assessment of Effectiveness

3.7.1 Environmental Assessment

3.7.1.1 The Reference Situation

Data exists for a number of possible reference points: the base years used for the targets set under the EA (1987 and 1990), and the initial year of signature (1995). However, the data are variable in quality and coverage and this demonstrates the need for clearer reporting in the EA, including the 1996 declaration of several associations.

3.7.1.2 The Targets

As noted in Section 3.4, Table 3.3, the EA targets for associations are presented against a base year of either 1987 or 1990. Many of the associations are already some way towards the 2005 targets, and it is generally accepted by the parties that the targets will be reached. This tends to reflect:

• The progress made over the period 1987 to 1995, before the EA was signed, and
• The fact that, for most of the associations, the targets are easily achievable;

This can be seen in Table 3.4, which shows the improvements (in specific terms) over time. In the case of the glass, cement and ceramic associations, improvements in energy efficiency before the EA was signed, but within the target timescales, represent more than half of the total target over the whole time period for the EA.

The latter point (that of easily achievable goals) reflects the fact that the targets were often set with the express intention of being easily achievable (source: interview discussions) given the measures adopted by the companies. It also reflects the fact (mentioned above) that the real targets for the EAs are lower then a first appraisal would suggest, given past progress, and indeed are very much in line with historical trends in energy efficiency improvements and CO₂ reductions (see next subsection).

In addition, the qualitative assessment of environmental effectiveness, based on the structure of the agreement and interviews with key actors, suggests that the current EA formula is unlikely to produce actions extending much, if at all, beyond a ‘no regrets’ stage. The main results have been publications and workshops for information dissemination and transfer of know-how. It would, therefore, be generous to conclude that the EA will be a vital factor in meeting the targets.

However, the EA is a flexible on-going process, which allows for revisions and improvements. The environmental effectiveness of the agreement can be ensured by maintaining the momentum established and by creating incentives for greater emissions reductions. This could include establishing tighter and staged targets and company-specific commitments. Indeed, there are already some discussions on tightening the targets on the basis of existing progress.

Table 3.4: Improvements Over Time in Energy Efficiency and CO₂ Reductions

Target**

Sources: EA (1996), E. Jochem & W. Eichhammer (1996)

3.7.1.3 The Baseline

In addition to comparing environmental performance against the reference points 1987, 1990 and, indeed, 1995, the environmental performance of the Climate Change EA should be assessed against a baseline which takes account of the energy efficiency improvements that German industry would make independent of the EA (reflecting the continuing incentives to save energy and cut costs, technological improvements and new investments to replace capital stock). Furthermore, the performance of the EA should be assessed against alternative policy scenarios e.g. a carbon/energy tax and the waste heat ordinance.

Business as Usual

Table 3.4 shows the improvements over time in energy efficiency and CO₂ emissions for specific sectors which are party to the EA and presents estimates of the annual energy efficiency improvements and the annual CO₂ emissions reductions where these are available.

It would be tempting to assume that, in the absence of the EA, this trend would continue into the future, as this would offer a useful baseline against which to judge the severity of the targets and the real effectiveness of the EA. However, there are strong arguments against following this assumption. It is not statistically tenable to maintain that past improvement rates are an indication of future improvement, both because of structural changes in the industry and because recent investments might signify that future efficiency gains will be smaller (or vice versa).

Alternative Policies

A further way to assess the effectiveness of the EA instrument is to compare it to other alternative instruments, such as the carbon/energy tax or the waste heat ordinance. A priori, it is clear that a carbon/energy tax would exert a greater incentive effect than the EA, as would the waste heat ordinance. The environmental effectiveness of these instruments is expected to be greater.

Regarding cost, the cost of the alternative carbon tax instrument would depend on how the tax is levied and on what is done with revenues from it. This is especially important as the appropriate use of the revenues or parallel reductions in other taxes (to ensure fiscal neutrality) could avoid potential competitive impacts and unwanted distribution effects. The cost of the other alternative instrument – the waste heat ordinance – is difficult to assess, though industry associations maintain that it would impose real costs through the inflexibility of its requirements. In each of these cases, the alternative instrument is likely to have some real effect on CO₂, while the cost is not clear.

3.7.1.4 Environmental Effectiveness

Assessment Against the Baseline

It is too early to assess the environmental effectiveness of the EA. Monitoring data on progress since the agreement was signed are not yet available (the first monitoring report is expected Autumn 1997). A 1996 RWI/IFO study states that Germany is unlikely to meet its CO₂ emission reduction targets, even with the current revised EA. The results, the methods applied and the scenarios outlined have also met with criticism (Wuppertal Institute 1997). Although the EA does not cover all sectors affected by the obligations, and is, therefore, not responsible for the total target, it is clear that an increased effort under the EA would be very helpful in ensuring that Germany meets its commitments under the FCCC. The transport sector is the key to the achievement of these total targets and including transport associations would clearly strengthen the EA.

Compared With Other Environmental Policy Instruments

However, for the EA under its current (1996) formulation, the ‘additional efforts’ are not expected to be great so the effect of the instrument is not expected to be significant. The EA cannot, therefore, be regarded as an efficient instrument and, if it is not efficient, it can hardly be regarded as cost-effective even if the cost of implementing it may be relatively low. However, these are a priori comments: real assessment will have to be based on an examination of the results when regular monitoring data becomes available and on any further revisions of the EA.

3.7.2 Assessment Against Wider Impacts

Cost-Effectiveness

The EA represents some extra costs, notably for monitoring and reporting, communication and specific initiatives. It has not, however, been possible to obtain data on costs and, thus, a comparison with the costs the companies would have borne, had the waste heat ordinance or a carbon/energy tax been implemented, is not possible. In any case, the costs of these alternative instruments would depend on their design and implementation (for example, the mechanism for levying the tax, the use of revenues, flexibility in the implementation of the Ordinance etc.). It also appears that the costs incurred under the EA to date are only slightly higher than the expenditure on improving energy efficiency purely for cost-saving reasons.

3.8 The Future

3.8.1 The Ideal EA

As noted earlier in this case study, this EA should be seen as a process and will continue to develop in the light of progress to targets and public comment on it. The following box identifies a number of areas in which the EA could be improved.

In addition to issues of how to improve the EA, there are also measures in which the EA document produced by the associations could be further developed. New revisions could valuably include the following information:

• Current total and specific emissions of CO₂ (and ideally share of national total);
• Current total and specific use of energy (and ideally share of national total);
• Coverage – Number of companies making up the association;
• Coverage – (In numbers and percentage of the market they represent);
• Targets – both specific and total, in relation to the reference year and baseline (BAU);
• Interim targets noted and not just a target 10 years into the future;
• Specific initiatives planned for implementation.

3.8.2 Issues - EU-Wide and Further Afield

CEFIC has suggested an EU-wide EA. CEFIC’s members are the chemical industry associations from 15 European states, including some from Eastern Europe. CEFIC put forward the initial EA proposal in 1990 and updated it in 1992.

Current recommendations include moving the CEFIC model to UNICE. This would provide a further EU umbrella model. It is much more important to have an EU wide agreement than a national one, given concerns over competition effects.

The ICCA (International Council of Chemicals Associations), which covers associations from the EU, USA, Japan, Canada, Australia, Taiwan and Korea, has also discussed (1 Nov. 1996) the possibility of developing an international EA. Similarly, the Clinton administration appears interested in EAs as a new instrument: the USA were positive about the model as demonstrated by Wittmeier.

The EA includes, also, a commitment that subsidiaries abroad will act in the the same way as parent domestic companies – e.g. Hoechst , which has a multitude of subsidiary companies abroad.

3.9 Conclusions

The following series of points summarises the key conclusions of the German Climate Change EA.

3.9.1 Outcomes

3.9.1.1 Environmental Effect

• Currently the entire focus is on CO₂ emissions reduction whereas, initially, (1995 version) it was only specific reductions (more valuable to the companies). Now 12 of the 17 associations have complemented this target with absolute reductions (more valuable to the government target).
• It is expected that subsequent developments of the EA will include other greenhouse gases;
• It is too early to tell the environmental effect of the EA itself. It started in 1995 but the first monitoring will be in August 1997. However, one association has already, outside of monitoring and reporting requirements, presented data on improvements made.
• Nearly all associations have shown significant energy and CO₂ savings in the past 10 to 20 years, and have shown improvements since 1990, the new benchmark year for the EA.

• Both associations and government maintain that the negotiations have increased the level of trust and co-operation between the groups. There was real progress on improving the EA from the 1995 to the 1996 version –which increased number of associations, had more companies with total reduction targets to complement specific reduction targets, included explicit monitoring and reporting requirements, and defined targets in terms of ‘reductions by 20%’ rather than by ‘up to 20%’.
• These improvements should, however, be considered in the context of the association requirements or quid pro quo for joining the EA. Most associations tie their targets to the condition that government does not introduce carbon/energy tax, waste heat ordinance, new financial measures, and other issues such as early retirement of nuclear power plants (VDEW) etc.
• It is important to see whether the associations continue to agree to developments of the EA – if as is expected, it is expanded to include ‘joint implementation’, tightening of targets, other greenhouse gases and, perhaps, permit trading.
• It is not clear what the other advantages of the EA are apart from those gained by industry who do not have to face the waste heat ordinance and the carbon/energy tax (though this tax is now very unlikely to be introduced given current antagonism to new taxes following the special unification tax – ‘Solidaritätszuschlag’).

3.9.1.3 Cost-Effectiveness/Tailor-Made EA?

• There are no company specific targets, only association-set totals. There are no methods in place to convince companies to do something; only the dissemination of information (monthly association journals, special publications etc.), special workshops and bench-marking exercises. Therefore, any improvement will be made on a no-regrets basis following an additional effort in the development and transfer of know-how. While costs are low, current incentives are such that benefits are also likely to be low.
• This EA is, perhaps, unusually specific in that the CO₂ problem is very different from waste water clean-up or recycling: it deals with energy efficiency and all large emitters are big purchasers of energy (except, of course, the large energy suppliers) and face continual incentives to increase energy efficiency, with subsequent CO₂ savings.

3.9.1.4 Quicker, Smoother Achievement of Objectives?

• To answer this question is more of a matter of theory, or a priori analysis, given that there are insufficient monitoring data to determine whether the EA has had a significant effect or is likely to have a significant effect .
• As it currently stands, a priori, some would argue that a carbon/energy tax scheme with staggered exemptions and linked to a fund supporting energy efficiency initiatives, would have been more effective. However, the EA tool is still being developed and progress is likely to be seen, if only as a result of the public continuing to harangue the government to improve it.

3.9.1.5 Issues/Transferability

• The effects are probably not insignificant for large companies, perhaps even internationally. Signing up certainly leads to some pressure to act, if only because it address the awareness barrier. The development of additional facets of the agreement will be interesting as this could help launch the joint implementation concept, the tradable permit scheme, the incorporation of other GHGs and, indeed, perhaps the resurrection of the carbon/energy tax, if only as a penalty for not meeting targets or as an incentive for free-riders to join the agreement.
• The fact that four new associations have already joined the agreements shows that this type of agreement is not limited to a specific sector, (the non-industry sector is also involved in the issue of CO₂).
• The model is transferable, though there might be some scepticism as to whether a gentlemen’s agreement, without enforcement, would work in all cultures.

3.9.2 Approach – Good Practice

3.9.2.1 Prior Consultation

• There was no prior consultation with NGOs.
• There was a long lead-in time before the agreement was signed, with the major associations involved throughout. Progress was only made when the government felt the pressure to have a product ready for the Berlin conference and industry needed an escape route from the impending waste heat ordinance.

3.9.2.2 Binding (Sanctions/Free-Riders)

• Currently, there are no sanctions, apart from public pressure, on free-riders, whether these are outside of the agreement or within the agreement but not doing anything.
• There is talk of the future use of the waste heat ordinance and perhaps also carbon/energy tax as a threat; the WWF has suggested that it be implemented retrogressively if targets are not met.

3.9.2.3 Quantified Staged Objectives

• There are no staged targets in the current EA, apart from VCI which has adopted a 2000 target.
• Targets are generally for 2005 relative to 1990 and/or 1987 and the electricity association (VDEW) target is for 2015. There are no interim targets, (barring that of the VCI) though there is reporting on targets which might lead to a gradual tightening of targets over time.
• Different associations have different targets, depending on their view of what is feasible.

3.9.2.4 Monitoring of Results

• In the 1995 agreement, there was no stipulation about monitoring;
• In the 1996 agreement, monitoring of results was agreed, with an association-specific reporting format and independent verification by the RWI. However, monitoring is not based on direct company surveys, but on data provided to the statistical offices as part of the requirement for companies with over 20 people to submit data on raw material use. It is, therefore, questionable whether all companies know their CO₂ emissions.

3.9.2.5 Publication of Agreements, Results

• Results are to be published yearly and made public.
• The agreements are public information (and they can be improved).

3.9.3 Other Key Issues

3.9.3.1 Relative Merits of EAs Compared to Other Instruments

• Very broad coverage of energy use/supply and CO₂ emissions (with a proposal mooted to bring in the transport sector).
• Cross-sector EA which is attracting more sectors.
• A process EA rather than a single short-term fixed tool. Allows further development and even the implementation of new ideas.
• It can, in principle, be used to complement other environment policy instruments such as taxes and regulation.
• Promises to be a unique, long-term, industry, and, potentially, economy-wide shared responsibility approach that can continue to develop and improve. The government states that it wants a yearly improvement of the instrument and, if industry agrees, then that is likely to happen.
• The EA does not, however, have the current incentive effects that a tax would have; though if there was a successful incorporation of the permit trading principle, then a dynamic incentive would be in place.

3.9.3.2 Sector Coverage – Ref. to Objective

The level of sector coverage is increasing and the aim is to continue to include other sectors.

3.9.3.3 Added Value – Ref. to BAU – Role and Ref. to Regulation

• This is very difficult to determine at this stage. It will certainly address the awareness barrier more effectively than regulation.
• How far CO₂ will be reduced from BAU is impossible to say. It depends really on the continued momentum and innovative ways of addressing awareness issues. However, there is a real potential here.

3.9.3.4 Relationship to Competition, Internal Market, Trade

• The EA was, in part, a response to the fear of unfair competition from foreign companies. Germany’s energy prices are already amongst the highest in the EU even without carbon/energy taxes and a heat ordinance. On top of that, Germany has some of the highest corporate and wage taxes and a special unification tax. The EA was perceived to be necessary to avoid threats of greater competition.
• Now the EA could help German industry by helping it saving costs, though, of course, the CO₂ EA model could be used by other countries, who could also gain energy- and, therefore, cost-savings, and, thus, offset any competitive advantages.

3.10 Information Sources

Interviewees and Key Research Institutes Active in EAs

References

BDI (1995): Declaration by German Industry and Trade on Global Warming Prevention, BDI, Cologne, Germany March, 1995.

BDI (1996a): Updated and Extended Declaration by German Industry and Trade on Global Warming Prevention: 27 March, 1996, BDI, Cologne, Germany.

BDI (1996b): CO₂ monitoring. Concept for Regular Reporting to provide Transparent and Intelligible Verification of the Declaration by German Industry and Trade on Global Warming Prevention, BDI, Cologne, Germany, February 26 1996.

BDI (1996c): Freiwillige Vereinbarungen und Selbstverplichtungen der Industrie im Bereich des Umweltschutzes, BDI, Cologne, April 1996.

BMU (1995): Staatssekretär Jauck fordert mehr Kooperation vom Staat und Wirtschaft im Umweltschtz, BMU-Pressemitteilung 117/95 Bundesministerium fur Umwelt, Naturschutz u. Reaktorsicherheit, Bonn, Germany.

BMWi et al (1996a): Effizienzsteigerung bei der Nutzung von Energie und Rohstoffen, Gemeinsames Positionspapier, Bundesministerium für Wirtschaft, IG Chemie-Papier-Keramik, Verband der Chemischen Industrie.

BMWi et al (1996b): Pressemitteillung: RWI/ifo Studie’ Gesamtwirtschaftliche Beurteilung von CO₂ Minderungstrategien, Bundesministerium für Wirtschaft, 21.11.1996.

CEFIC (1996): VEEP (2005): Position Paper, June 1996.

Hoffman T (1995): Das CO₂ Minderungspotential in der Deutschen Elekrizitätswirtschaft, Spektrum EP 9/95, Luftreinhaltung EP, 10/95.

Hoffman T. & M. Hildebrand (1996): Involvement of the German electricity suppliers in climatic protection. in StromDISKUSSION, IZIE, Frankfurt, Germany.

Jochem E. & W. Eichhammer (1996): Voluntary Agreements on CO₂-emissions Reduction of Seven Associations of the German Economy, Workshop on Voluntary Approaches in the Field of the Environment, Paris, June 17 1996.

Rennings K, K.L. Brockmann, H. Bergmann (1996b): Voluntary Agreements in Environmental Protection: No Free-Market Instrument, ZEW, Mannheim, Germany (English summary of ZEW 1996).

VCI (1996): Self Commitment for the Energy Sector by the German Chemical Industry (VCI), VCI, Frankfurt, Germany, February 21, 1996.

Vorholz, F (1996): Papier mit Sprengkraft, Die Zeit, 22.11.1996.

Wuppertal Institut (1995): Erklärung der deutschen Wirtschaft zur Klimavorsorge: Königsweg oder Mogelpackung?, Wuppertal Paper No. 39, Wuppertal July.

Wuppertal Institut (1997): Aktualisierte Erklärung der deutschen Wirtschaft zur Klimavorsorge: Große Worte, keine Taten?, Wuppertal Paper No. 71, Wuppertal March.

ZEW (1996): Möglichkeiten und Grenzen von freiwilligen Umweltschutzmassnahmen der Wirtschaft unter ordnungspolitischen Aspekten, Endbericht, ZEW, Mannheim, Germany.

*: The case study was revised by Kai Schlegelmilch/Stefan Ramesohl (Wuppertal Institute for Climate, Environment and Energy, Wuppertal)