Coal subsidization and nuclear phase-out in a general equilibrium model for Germany

Abstract

The subsidization of domestic hard coal and the future of nuclear power generation are highly controversial issues of German energy policy. This paper offers an analysis of a nuclear phase-out scenario and a scenario of accelerated dismantling of coal subsidies within a dynamic general equilibrium model for Germany. The German economy is modeled in the context of the European Union, because European energy markets are becoming increasingly integrated. It is found that the nuclear phase-out has an effect both on the sectoral and the macroeconomic level, including a modest decrease in GDP, and a substantial increase in CO 2 emissions. The accelerated removal of coal subsidies has a noticeable effect on the sectoral and macroeconomic structure as well, but the effect on GDP is found to be rather negligible. CO 2 emissions are reduced only slightly, because domestic coal is mainly replaced by imported coal. On the basis of these findings it is conjectured that policy making on these issues is likely to be based on politics rather than strictly macroeconomic considerations.