Merkel confronts German energy industry with radical policy overhaul

Merkel also ruled out any change to the government's nuclear policy before the next election, scheduled for 2009, that calls for the industry to be phased out in the next 14 years. As part of the emissions-cutting plan, Merkel said she intended to require energy producers to increase efficiency by 3 percent each year and improve conservation.

"This is about putting in place a long-term energy policy until 2020 for the environment that includes energy efficiency and energy security," Merkel said after an energy summit meeting attended by the biggest electricity, natural gas and coal companies in Germany.

Merkel has made the reduction of greenhouse gases one of the hallmarks of her domestic and foreign policy, and conservation is a central theme in her party's program, which was published Monday. The policy is part of Merkel's efforts to shed the image of the Christian Democratic Union party as uninterested in green issues and to project a modern and centrist image more palatable to an environmentally conscious younger generation normally aligned with the Greens.

Sigmar Gabriel, the environment minister and a Social Democrat, said the current strong economic growth in Germany should allow the companies to invest in more energy efficiency equipment that could save consumers as much as €50 billion, or $68 billion, a year. Consumers in Germany pay among the highest energy costs in the European Union, according to the Federation of German Consumer Organizations.

Annette Schavan, the technology minister and a conservative, said the state would provide at least €1.5 billion for research and development projects to expand renewable energy.

The renewable energy sector praised Merkel for confronting the energy companies, which have been reluctant to introduce efficiency measures.

"We welcome the decisions made today," said Ulf Gerder, a spokesman for Germany's renewable energy association. Renewable energy, which includes solar and wind power and is state subsidized, accounts for 9 percent of the country's energy needs.

Over the years, the German energy industry has developed vertical structures that stretch from production and distribution to transportation and retailing, making it difficult for small producers to enter the market.

Merkel said she wanted to "unbundle," or break these arrangements to allow more competition. The European Commission has been pursuing the same policy for several years but has repeatedly met resistance from the German companies. The liberalization of EU energy markets, which began on Monday, has had little effect in Germany.

"This shows a clear commitment by the government to energy efficiency," Gerder added. "The nuclear energy plants do not have to be prolonged. Renewable energy, also in the form of combined heat and power plants, can compensate for the nuclear power plants."

Merkel dashed the hopes of the energy lobby - led by E.ON, Vattenfall Europe, RWE and Energie Baden-Württemberg - to prolong nuclear power.

Under an agreement made in 2000 by the former Social Democrat and Green coalition led by Gerhard Schröder, Germany's 17 nuclear energy plants would be gradually decommissioned by 2021.

After Merkel, a conservative, was appointed chancellor in November 2005, the lobby went on an ultimately unsuccessful offensive to reverse the decision. But Merkel on Tuesday stuck to her coalition's policy of phasing out the plants.

The energy industry, however, criticized Merkel's plan as unworkable and likely to lead to higher rates for consumers.

In a bid to win over the government and public opinion, RWE, one of Germany's largest energy groups, published a four-page paid supplement in several newspapers Tuesday in which its chief executive, Harry Roels, appealed to the government to reconsider its nuclear energy policies. He said the decision to phase out nuclear power was made "when climate protection was not as high in the public imagination as it is today."

Foreign energy companies also criticized Merkel's environmental policies. Vattenfall of Sweden, which recently invested in Germany's lucrative energy sector, said "the government's energy policy is an anti-energy policy."