ENGAGING GERMANY ON ENERGY AND CLIMATE: CEQ

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SUBJECT: ENGAGING GERMANY ON ENERGY AND CLIMATE: CEQ
CHAIRMAN'S MEETINGS WITH GERMAN OFFICIALS AND GERMAN
PRIORITIES FOR ITS G-8 AND EU PRESIDENCIES


1. SUMMARY: White House Council on Environmental Quality
Chairman James L. Connaughton met with senior German
officials from the Environment, Economic, and Foreign Affairs
Ministries as well as the Bundestag (parliament) and
Chancellery to discuss environment and energy policy as
Germany prepares to take over the EU and the G-8 presidencies
in 2007. The meetings took place following the High Level
Dialogue on Climate, Clean Energy, and Sustainable
Development October 24-25 in Helsinki. Comments from
interlocutors at all agencies indicate Germany approaches
climate change as an integrated policy approach with a
recognition of the economic potential of exporting clean
technologies to India and China. Germany's goals for the EU
and G-8 presidencies will include a focus on energy
efficiency and promoting clean energy technologies,
biodiesel, and clean coal. Interlocutors agreed with
Conanaughton these are areas where the U.S. and Germany can
and should cooperate. German officials were eager for
follow-on discussions that would lead to further cooperation.
Officials for the Bundestag, Ministry of Foreign Affairs,
and Chancellery explained that Berlin remains committed to
the Kyoto Protocol, and to the post-2012 framework
discussion.


2. Connaughton used his meetings to make key points on clean
coal, biodiesel, energy efficiency, and international climate
change negotiations. Connaughton also made a presentation on
U.S. climate policy at the Friedrich Ebert Foundation,
highlighting U.S. domestic and international policies that
advance the development and deployment of cleaner and more
efficient technologies that reduce greenhouse gas emissions,
improve air quality, and lead to greater energy security.
German public opinion of U.S. environmental policy is
generally very critical and Connaughton did some much-needed
public outreach in an exclusive interview with Die Zeit, a
leading national newspaper. END SUMMARY

CLEAN COAL


3. On the topic of clean coal, Connaughton shared with his
interlocutors U.S. plans to commercially deploy advanced coal
power technology, including FutureGen, the world's first
integrated sequestration and hydrogen production research
power plant. He said the federal government will shortly
announce approximately USD 1 billion in tax credits to
encourage commercial construction of advanced clean coal
plants. Connaughton encouraged Germany to pursue a parallel
strategy on a similar scale to that of the U.S. so that both
countries would test different clean coal technology
platforms and learn the true economics of the technology. He
noted China has been reluctant to invest so heavily in clean
coal, but transatlantic cooperation on this issue could
change things. If we are successful in lowering clean coal's
capital costs and accelerating commercial deployment, he
suggested, we will be in a stronger position to urge China
and other developing countries to adopt the technology.


4. Officials from all agencies acknowledged the U.S. and
Germany, as two of the largest coal users and the leading
innovators of clean coal technology, have a common interest
in promoting clean coal at home and abroad and the G-8 could
provide the forum to do so. Foreign Ministry Director
General for Economics and Sustainable Development and G-8
Sous Sherpa Peter Ammon said clean coal will be a
"centerpiece" of the German presidency and recommended
forming a contact group. Johannes Kindler, Deputy Director
General for Industry, Energy, and Telecommunications at the
Chancellery asked Connaughton to convey Germany's interest in
bilateral cooperation on clean coal to the President.
Kindler said the time is ripe for U.S.- German cooperation on
clean coal at the government and industrial levels and noted
GE has expressed interest in cooperating with Munich-based
Siemens. For its part, he said, German industry is eager to
cooperate with U.S. counterparts.


5. Clean coal cooperation was also advanced by Ministry of
Environment State Secretary Matthias Machnig, who said the
U.S. and Germany should use the G-8 sherpa process to explore
promoting clean coal in third countries. He cautioned that
there is still serious public concern about the safety of
underground carbon storage which poses a challenge to
investment in clean coal technology in Germany. Machnig
noted a public endorsement of the importance of clean coal by
Chancellor Merkel, an East German and former Environment
Minister, would send a powerful political signal in support
of this technology to the international community. He
suggested that if the German public knew that by 2020 all new
power plants would have to be equipped for carbon capture and
sequestration (CCS),innovation would take off. While
acknowledging the G-8 cannot articulate such a specific goal,
he said it would be very useful if G-8 leaders emphasized the
importance of speeding up the commercial deployment of clean
coal technology.


6. In Connaughton's meeting with Parliamentary State
Secretary Peter Hintze at the Economic Ministry, Andreas

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Obersteller, Deputy Director General for Sustainable Energy,
Efficiency, Coal, and Mining, explained clean coal is part of
Germany's graduated process of increasing energy efficiency.
The first step is making existing traditional power plants
and new plants more efficient. He said there are already new
German power plants (i.e., 2000 MW plants currently being
built by RWE in North Rhine Westphalia) that are utilizing
the best available technology and are more efficient than
their predecessors. Building clean coal facilities is the
next step after achieving greater efficiency in traditional
power plants. Connaughton pointed out, and Economic Ministry
interlocutors agreed, that Germany's G-8 presidency would be
an opportunity to articulate to the public the role of clean
coal in this process.


7. Speaking on behalf of the Bundestag Environment
Committee, Deputy Chair and Left Party member Eva
Bulling-Schroeter told Connaughton that the Bundestag also
sees clean coal as an increasingly important part of
Germany's approach to climate change.

ENERGY EFFICIENCY


8. Connaughton suggested Germany use its role as G-8
president to shift attention to a greater focus on energy
efficiency. He noted energy efficiency is a good way to
engage China on greenhouse gas emission reductions, given
Beijing's goal of increasing efficiency by 20 percent by

2010. Connaughton explained that Asia Pacific Partnership
(APP) task forces are currently identifying targets and
projects for investment in energy efficiency in each
industrial sector under the APP.


9. Interlocutors at the Chancellery and MFA emphasized
energy efficiency will be on Germany's EU and G-8 presidency
agendas. The Environment Ministry's Machnig also stated it
would be helpful if the U.S. made clear, in the G-8 context,
its strong interest in energy efficiency and suggested
identifying specific areas for cooperation.


10. At the Economic Ministry, Obersteller commented that
Germany's approach to energy efficiency, in contrast to that
of the European Commission, is market-oriented. As an
example he explained Brussels is considering mandating
(currently voluntary) carbon emissions reductions in the
automobile sector but Germany advocates consumer labeling of
vehicles so people know how much fuel a car consumes before
they buy it.

BIOFUELS


11. Connaughton noted the U.S. is focusing on the
development and deployment of second generation biofuels,
including ethanol and biodiesel. He mentioned to
interlocutors the U.S. has mandatory target of producing 7.5
billion gallons of biofuel by 2012. The U.S. may produce as
much as 12 billion gallons, he explained, depending on market
demand. On biodiesel, he noted German biodiesel standards
favor rapeseed while U.S. standards favor soybeans and
emphasized that harmonizing standards is essential for the
development and global interoperability of biofuels and other
key new energy saving/emissions cutting technologies.


12. The Chancellery agreed that biofuels is an area ripe for
U.S.- German cooperation in the context of their upcoming EU
and G-8 presidencies. Kindler suggested the U.S. and EU
bolster their clean technology sectors by working to jointly
set standards and efficiency criteria. In comments made
before MFA State Secretary Georg Boomgaarden joined their
meeting, Ammon told Connaughton he wants to see more
U.S.-German cooperation on biofuels. He noted German
companies, such as Daimler Chrysler, are pushing forward on
second generation biofuels and biomass-to-liquid (BTL)
development and emphasized the need for the U.S. and German
governments to engage industries in their bilateral
discussion. He also pointed out that biofuels makes sense as
a fuel source for the U.S. and Germany, who both want to put
surplus agricultural productions capacity to good use.

INTERNATIONAL PROCESS STILL KEY


13. While showing strong interest in cooperating with the
U.S. on clean coal technology, energy efficiency, and
biofuels, interlocutors from the MFA, Ministry of
Environment, Chancellery, and Bundestag nonetheless expressed
Germany's unwavering commitment to international discussions
on climate change, both through the Kyoto Protocol and the
discussions on a follow-on agreement.


14. Connaughton stressed the importance of engaging China
and India on climate protection as part of a broader agenda,
including energy security and environmental quality. He
noted that China and India rank climate change lower than
energy security and air pollution and are not organized
around the goal of reducing greenhouse gas emissions.
Connaughton explained that the Asia Pacific Partnership was
created in part to help promote such a dialogue. He said the
EU made a mistake at Montreal by assuring China and India
that they would not be obligated to make emissions reductions
in a post-2012 regime and stressed that the U.S. will not
join an international framework in which developing countries
have no commitments. Connaughton explained the U.S. supports
a dialogue among all UN members within the UNFCCC but a more
focused discussion among environment, economic, energy, and
industry interests of the 15-20 leading emitters of carbon
dioxide would be more effective in coming up with real
solutions. He noted British Prime Minister Tony Blair started
this kind of "leadership dialogue" on climate change at
Gleneagles.


15. MFA State Secretary Boomgaarden's first comment in his
meeting with Connaughton was that it is important to have the
U.S. "in the boat" in post-2012 discussions, along with India
and China. Boomgaarden said he is optimistic clean coal and
other technologies can become economically viable. He
stressed the importance of the Kyoto process and the inherent
value of approaching climate at the international level and
of having specific goals for carbon emissions reductions.
Boomgaarden acknowledged U.S. reticence to commit to a target
for absolute carbon emissions reductions, but pointed out
that the U.S. has targets in other areas. He said on aid to
Africa, for example, Americans are comfortable with setting a
number goal.


16. Boomgaarden, however, acknowledged the value of a
smaller-scale discussion on climate among key industrialized
countries. He said it was useful that UK Prime Minister Tony
Blair stared the G-8 dialogue on climate at Gleneagles and
noted the G-8 process is an easier way to engage ministries
of Economics/Energy than within the UNFCCC. He concluded by
reiterating the need for a minimum binding goal such as
preventing a global temperature rise of more than 2 degrees
Celsius above pre-industrial levels. There are different
ways to achieve such a goal, he said, but stressed "the
discussion doesn't make sense without the context of binding
goals." Ammon qualified Boomgaarden's remarks by commenting
"it doesn't make sense for the U.S. and Germany to have a
religious war" about how to approach climate when there is
there is so much the two countries have common, such as
interest in engaging in China, which will soon be the biggest
emitter of carbon dioxide.


17. Members of the Bundestag from all parties similarly
advocated strong support of the Kyoto process. Dr. Axel
Berg, Social Democrat member of the Economic Committee, said
that while he is "no great fan" of Kyoto, he does not see
Kyoto commitments and support for technological innovation as
mutually exclusive. Both the U.S. and Germany want to sell
clean coal technology to China, he continued, and Germany
wants to use the Clean Development Mechanism under the Kyoto
Protocol as a mechanism to do so. Michael Kauch, Left Party
member of the Environment Committee, supported Berg's
comments but noted that the German public's impression of
U.S. environmental policy is tainted by the U. S. refusal to
discuss Kyoto.


18. Machnig touched on the topic of international
cooperation on climate by raising the issue of adaptation.
He said there needs to be a signal at the G-8 level that we
take the concerns of developing countries seriously and will
support their adaptation to climate change. Connaughton
agreed but explained the U.S. sees adaptation as part of a
broader, sustainable development agenda. Machnig insisted on
the importance of signaling to the developing world that we
support adaptation by putting money into the World Bank
Energy Investment Framework for this cause.


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TIMKEN JR