The German government’s adoption of the so-called Energy Concept in 2010 and its decision in the summer of 2011 to phase out nuclear energy altogether within the next ten years, has started a process of severe transformation of the German system of energy provision. Specifically, until 2050 renewables will have to become the dominant source of electricity generation. Disconcertingly, up to now the government has not outlined a comprehensive overall strategy how this objective should be achieved in practice. In this paper we discuss the necessary preconditions for a successful transformation in the German energy system. Overall cost of this transition could be held in check, if economic policy were to rely exclusively on a properly designed European Emission Trading System. Yet, instead of attempting to eliminate the remaining deficiencies of this already existing instrument, policy makers in Germany and all across Europe insist on devising additional subsidy schemes for renewables. We argue that the most sensible way to do this is by implementing a renewable support system that is harmonized across Europe. To this end, Germany should switch from current system of feed-in tariffs to a quantity-based system of Green Certificates and, in a second step, combine the German Green Certificate market with that of other European countries.
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