SCENESETTER FOR CEQ CHAIRMAN JAMES L.

UNCLAS SECTION 01 OF 03 BERLIN 003060 SIPDIS FOR WHITE HOUSE - DAVE BANKS SIPDIS E.O. 12958: N/A TAGS: SENV ECON ENRG EAIR GM SUBJECT: SCENESETTER FOR CEQ CHAIRMAN JAMES L. CONNAUGHTON'S VISIT TO GERMANY ¶1. SUMMARY. Your visit to Germany -- Frankfurt October 23 and Berlin October 26-28 -- provides excellent opportunities to advance U.S.-German cooperation and to refute German public misperceptions about U.S. climate and energy policies. The visit particularly offers opportunities to engage on clean energy technology, to explore ways to advance bilaterally what was started with the 2005 Mainz Declaration, and look at what Germany might do during its upcoming EU and G-8 presidencies. The senior officials you will meet in the ministries of Environment and Economics, the Bundestag, and in the Chancellery are taking a more pragmatic, constructive approach in dealing with us in respect to climate change and other environmnetal issues. The Merkel-led coalition readily sees the linkages between environmentally friendly technology, including in the energy sector, and economic growth/potential commercial success. Senior officials acknowledge steps U.S. industries have taken to boost energy efficiency and recognize U.S. scientists and industries are making discoveries and technological innovations that can benefit the environment. Top German officials have signaled a strong interest in bilateral discussions that include both government and industry. Your visit is especially timely because the government is finalizing its agenda for the 2007 EU and G-8 presidencies and energy efficiency is expected to play a major role. END SUMMARY. -------------- GOVERNMENT DESIRE TO ENGAGE INDUSTRY -------------- ¶2. The current government -- a grand coalition of Christian Democrats and Social Democrats -- is markedly more receptive than its Social Democratic-Green predecessor to cooperation with the U.S. on climate and energy issues. The doctrinaire Green Juergen Trittin is gone, replaced as Environment Minister by the pragmatic Social Democrat Sigmar Gabriel. The Chancellor, a former CDU Environment Minister, still watches environmental issues and forged a connection between environment and energy policy makers in the Energy Summit dialogue she launched in April 2006. Its goal is to develop a national energy strategy for taking Germany to 2020 while paying attention to environmental concerns and the need for broader international cooperation. The ministries of Economics, Environment, and Foreign Affairs all participate, as do selected German industries. In this context the Chancellery has sent two significant signals demonstrating a new perspective on Germany's energy future. One is in the realm of nuclear power: the process does not directly address the controversial planned phase-out of nuclear power, but Merkel stated the government must "lay everything on the table" when considering its energy policy. Merkel's CDU/CSU supporters, including Economics Minister Glos, have publicly called for doing away with the nuclear phase-out scheduled for 2015. Some moderate SPD members agree, albeit less publicly. Environment Minister Gabriel (SPD) strongly supports sticking with the nuclear phaseout, but has also changed the Environment Ministry's message on coal, emphasizing it as a transition technology. The other signal is the strong focus the Chancellery gives environmental innovation -- particularly in energy efficiency and clean energy -- as a tool in economic growth. ¶3. The Merkel government wants to work with us more on energy efficiency. Energy efficiency will be high on the EU presidency and G-8 agenda. Economic Ministry officials see clean coal/clean fossil fuels, heating energy efficiency in buildings, and more energy efficient vehicles as areas for discussion for G-8 leaders next year. Officials at the Environment Ministry want U.S. ideas on boosting efficiency through federal programs such as Energy Star, as well as input from specific U.S. industry sectors on their successes in cutting energy consumption. One idea perhaps to explore during your visit may be whether high profile dialogue between U.S. and German energy-intensive sectors -- such as the chemical sector -- and the two governments could provide the structure for broader bilateral engagement on climate. A sectoral approach, like that of the APP, could be a way to build on Mainz. ¶4. Environment, MFA and Economic Ministry officials tell us Germany will raise climate change during its G-8 presidency, but with of a focus on energy efficiency, clean energy, and new technology. One reason is the need for Merkel to satisfy German public opinion. At the same time, Economic Ministry officials say Germany will seek consensus on any statements on climate change and take a different approach from the UK at Gleneagles. ¶5. All the same, the German public remains skeptical about U.S. interest in combating climate change. German newspapers BERLIN 00003060 002 OF 003 and periodicals routinely criticize U.S. climate policy. Public outreach is crucial and effective in changing popular misperceptions: following his meeting with you in Washington, Bundestag Green Party member Matthias Berninger stated in an interview with a major German daily newspaper that the image of the U.S. as an "environmental killer" is not correct. He then went on to articulate his belief that U.S. environmental technologies will be more advanced than Europe's. -------------- RECENT DEVELOPMENTS IN CLEAN ENERGY -------------- ¶6. On August 1 a new energy law came into effect that places a nine euro cent/liter tax on biodiesel and rises by six euro cents annually to put biodiesel on equal footing with the fossil diesel tax (currently at 47 cents/liter) by 2012. The Bundestag passed a law requiring that German diesel fuel contain five percent biodiesel effective January 2007. The law couples this quota with an international quality standard, DIN EN 14214, which establishes minimum performance requirements for biodiesel at cold temperatures. Producers of biodiesel not meeting the standards will have to pay the full 47 cent/liter tax. German biodiesel producers, already concerned over annual tax hikes, favor introducing DIN EN 14214 because it will protect the domestic market from foreign producers. Domestic rapeseed-based biodiesel already meets the DIN EN 14214 requirements. ¶7. In June the government introduced its National Allocation Plan for 2008-2012, which is Germany's second period of emissions regulations for energy providers, industry, land transportation, and households. An emissions trading system applies to energy providers and several industries. The plan is designed to encourage power companies to replace their older plants with new, more efficient installations by letting them transfer four years of allowances from old facilities to new ones provided they meet performance benchmarks based on best available technology. So far the transfer rule is having the desired effect. Germany's largest energy company, RWE, has announced plans to close down a number of smaller power plants built in the 1950s and open three 2,200 megawatt facilities in their place. -------------- U.S. AND GERMAN COMPANIES -------------- ¶8. U.S. companies active in Germany share interests with German firms in clean energy technologies such as clean coal, biofuel, and renewables. Sweden's Vattenfall, one of the largest power companies in Germany, has already started constructing a carbon sequestration pilot facility. RWE is also planning construction of the first commercially viable clean coal power plant with carbon sequestration technology. Biofuel producers are providing more household heating and electricity, especially in the former East Germany (where biomass is easier to collect because the farms are larger), which provides jobs in an area of high unemployment. ¶9. The automobile sector, one of the largest components of the German economy, includes a significant number of partnerships that promote hybrids and fuel cell technology between U.S. and German manufacturers. Shell Germany, Volkswagen, and DaimlerChrysler have a joint venture to build the world's first commercial biomass-to-liquid (BTL) facility in Freiberg. Officials in the Chancellery have expressed enthusiasm in the development of BTL because it can be produced from a broader range of plants and plant parts than the current biodiesel. You will visit the Opel fuel cell facility as part of your trip to Frankfurt where you will have the chance to discuss Opel's work on biodiesel, hybrid, and fuel cell technology. ¶10. On renewables, cooperation between U.S. and German firms is occurring in the solar sector. A photovoltaic production facility recently opened in the eastern state of Saxony-Anhalt that is a German-U.S.-Swedish joint venture which produces solar cells and modules. The facility was funded in part by the German government, and is a good example of public-private sector partnerships in the area of renewable energy. It will create 300-400 jobs in an economically depressed region. It also benefits from German subsidies for the solar power industry. General Electric opened its European Global Research Center in Garching, Bavaria in 2004 where major research focus areas include alternative energy generation technologies such as hydrogen and biomass and electrical systems for renewable energy sources such as solar, wind, and water. BERLIN 00003060 003 OF 003 KOENIG