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.

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GOVERNMENT DESIRE TO ENGAGE INDUSTRY
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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

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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.

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RECENT DEVELOPMENTS IN CLEAN ENERGY
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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.

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U.S. AND GERMAN COMPANIES
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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.


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