20.02.22 The climate coalition Author: Claus Hornung • Reading time: 6 min.

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Summary

One million charging points for electric cars, environmentally friendly heating systems, more offshore wind farms: the new coalition government in Germany has set itself plenty of climate targets, which are often highly specific. It has not yet come up with any proposals as to how all of this will be financed, but it has inherited a problematic issue: Why should natural gas be considered climate-friendly if nuclear power is not?

If this was just about quantity, then everything would be fine. Combating climate change is of overriding importance to the new German government. The word “climate“ appears 198 times in its coalition agreement. By contrast, it only featured 78 times in the agreement drawn up by Germany's last coalition between the Christian Democrats and the Social Democrats. But when it comes to specific measures for achieving the climate targets, the agreement is often vague. And even more so about the question of how these measures will be funded.

Energy generation: Speeding up the expansion of wind and solar

The coalition intends to increase the pace of development of renewable energies. The previous government's target of renewables making up 65 percent of the electricity mix by 2030 has been increased to 80 percent. To put this in perspective, between 2010 and 2021 the proportion of renewable energies rose from 17 to 43 percent and reached its high point of 45 percent in 2020. Another challenge makes the 80-percent target seem even more ambitious. The new government believes that electricity consumption over the next ten years will be much higher than its predecessor had estimated. Instead of 500 terawatt hours, the coalition is basing its calculations on 680 to 750 terawatt hours per year. To meet this demand, the number of solar and offshore wind farms is to quadruple by 2030. There are no firm figures for onshore wind.

Speeding up the expansion means speeding up the bureaucracy. For this purpose, external project teams will be brought in to relieve the pressure on the regulatory authorities. The requirements in the application documents will be made clearer, along with the deadlines for granting approval, all of which sounds very laudable.

The government's targets for the phase-out of coal are much less clear. The coalition agreement does not explicitly distance itself from the existing target of 2038 for the completion of the process. It simply says that the phase-out should “ideally“ be brought forward to 2030.

Gas as a transitional solution

To guarantee the supply of energy during the transition period, the new government is relying on a fossil fuel. New gas-fired power stations will be built, but only under certain conditions. For example, they must be H2-ready, which means that they will be able to burn green hydrogen. This represents a building block for another project: the creation of a hydrogen economy. By 2030, the capacity for water electrolysis will be increased to ten gigawatts. This will be made possible by the newly constructed offshore wind farms and European and international energy partnerships.

Taxonomy: Natural gas and nuclear in the same category

With this commitment to gas, Germany has maneuvered itself into a difficult position. To enable gas to be used as bridge technology, the previous government called for the fossil fuel to be included in the EU Taxonomy Regulation as a climate-neutral energy source and therefore to be defined as sustainable. However, in early February the EU Commission announced that it would categorize not only natural gas but also nuclear power as climate neutral. This was primarily as a result of pressure from France and Poland and gave rise to criticism from many of the coalition members of the German parliament. We are strongly opposed to this assessment of nuclear power, said Chancellor Olaf Scholz, via his government spokesperson.

However, there is still a question that the new government needs to answer. Why are gas-fired power stations that produce CO2 sustainable, while zero-carbon nuclear power plants are not? Many experts are critical of the EU's entire classification project. “By labelling nuclear power and natural gas as sustainable, the taxonomy has lost all its credibility,“ says Sascha Müller-Kraenner, Executive Director of Environmental Action Germany, for example. This is not just about accusations of greenwashing, but also about the tangible financial impact. The taxonomy will be used to decide whether or not private investments are sustainable. And the rule will possibly be extended to cover public investments.

Mobility: More electric cars, more rail freight

Fossil fuels are to disappear rapidly from the transport system. By 2030, the plan is for there to be 15 million purely electric cars on Germany’s roads, compared with the current figure of 700,000. This is almost double the previous target of seven to ten million. To put this figure in perspective, over the last decade 1.3 million new diesel vehicles were registered on average every year.

It is not only the number of electric vehicles that is set to increase significantly. The new government also has ambitious plans for the infrastructure. By 2030, one million freely available public charging points should be installed. To ensure that the expansion happens quickly, the coalition aims to “evaluate the efficiency of the processes and remove unnecessary red tape.” Subsidies will also be made available. This move has been praised by the German Association of the Automotive Industry (VDA) which said that the new government had recognized that Germany’s “infrastructure has a lot of catching up to do in almost all areas and needs significant improvement.” However, the next step is the actual implementation.

There are also plans to increase the volume of rail transport. By 2030, 25 percent of all goods will travel by rail. Over the last ten years, this figure has been around 18 percent. Passenger numbers on the railways are to double, but no baseline year has been given. The targets for local public transport are even more vague. The only clear goal is to “significantly” increase passenger numbers. In order to achieve this, the government plans “to enable the federal states and municipalities to increase the attractiveness and capacity of local public transport.” 

Buildings: New heating systems and building passports 

The climate measures will also impact tenants and property owners. The plan is for every new heating system installed after 2025 to run on at least 65 percent renewable energy. How that is to be achieved in the old housing stock in the inner cities remains to be seen. As early as 2024, stricter regulations will apply to key components of heating systems that are replaced, converted or extended. Technical energy supply systems and building shells are to be optimized to be open to all types of technology. And a digital building resource passport that records exactly which materials have been used in what quantities will help to ensure that as much of these materials as possible can be reused if the building is demolished or converted. 

In addition, photovoltaic systems on the roofs of new private houses will become the rule. It is not clear whether this rule will be binding. Unlike the case of solar panels on the roofs of commercial buildings, there is no mention of a mandatory requirement. 

Climate policy at the cost of prosperity? 

But how will these ambitious targets be financed without putting living standards at risk? Even successful measures involve financial risks, says Stefan Kooths, Research Director Business Cycles and Growth at the Kiel Institute for the World Economy: “Converting manufacturing plants to produce lower levels of greenhouse gas emissions will require massive investment and will increase the demand for capital.” Unlike investments made for purely financial reasons, such as money spent on more efficient machinery, this expenditure will not bring any return, according to Kooths: “The investments will not increase production capacity in the foreseeable future, they will ‘only’ make it emission-free.” The President the Federation of German Industries (BDI), Siegfried Russwurm, also warns: “If the costs continue to increase, companies will simply move abroad.” 

By contrast, the new German Finance Minister Christian Lindner made it clear during the coalition negotiations that for him prosperity and climate action are not mutually exclusive: “Our job is to disassociate added value and growth from the consumption of natural resources and the damage being caused to the climate. I believe that a social-ecological market economy is the best way of doing this.” The coalition agreement takes a similarly visionary approach. It explains that, to safeguard living standards, “we need to exploit the innovative ability of our economy.” This will be achieved primarily by creating a “level competitive playing field,” which will include a fair taxation system and measures to combat tax evasion.  

However, it is clear who will not be responsible for the costs of the climate policy and that is consumers. Because of the already high energy prices, the carbon tax on gasoline, diesel, heating oil, and natural gas will be increased only at the annual rate planned by the previous government and the renewable energy surcharge will disappear altogether in 2023.

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