Energy and climate crunch points in German government coalition talks

Germany's conservative CDU/CSU alliance is conducting formal coalition negotiations with the Social Democrats (SPD). The camps are already used to working with each other, as they have repeatedly formed coalitions in the past – a combination known so far as the "grand coalition" between the traditionally biggest German parties.

Documents from exploratory talks as well as formal coalition negotiations show that there is a fair amount of overlap between the parties' plans for energy and climate policies, but they will have to overcome disagreements over some details and priorities.

Broadly speaking, the conservatives tend to favour a more market-based approach, including tax breaks and deregulation, while the Social Democrats put more emphasis on a bigger role for the state and social policies. The conservatives' priorities often align with business interests, while the Social Democrats tend to favour labour union positions. When it comes to the energy transition, these interests often align – both the business community and the unions agree that pursuing the path to net zero is in Germany's long-term interest.

Major overlaps in climate and energy policies

Based on exploratory talks and preliminary coalition negotiation papers, which are meant to form the basis for a formal coalition agreement, the conservatives and the Social Democrats have agreed on:

• sticking to Germany's target of becoming climate neutral by 2045
• pushing forward the energy transition in all sectors of the economy, including industry decarbonisation
• huge investments for infrastructure and climate to the tune of 500 billion euros over the next 12 years
• reducing electricity costs for households and industry by cutting grid fees and electricity taxes
• continuing the buildout of renewables, the electricity grid and storage solutions
• the need for a capacity market and gas-fired power stations as a back-up for renewables to guarantee supply security
• social compensation instruments to support households and industry for rising carbon prices, using money from the EU Social Climate Fund and the CO2 price revenues (including “relief and support for housing and mobility” depending on how well-off people are)
• keeping the Germany-wide public transport ticket, investing in improving rail infrastructure and supporting the ramp-up of electric mobility with a purchase premium

Major disagreements over climate and energy policies

In contrast, the parties have to find compromises on the following points in particular:

• Oil and gas boiler phase-out: Party members in the transport, infrastructure and buildings working group agreed to "abolish" Germany's "heating law." However, the climate and energy working group came to no such agreement. Instead, the CDU/CSU would abolish the heating law and replace it with new legislation, which accounts for "long-term emission efficiency." The SPD, on the other hand, wants to ensure planning and investment security, and would only "amend" the heating law to make it more flexible, technology neutral and less bureaucratic.
• Nuclear energy: The CDU insists on "a technical assessment as quickly as possible" to see whether it is possible to resume the operation of Germany's last decommissioned nuclear power plants "at reasonable technical and financial cost," and to "immediately stop" the plant's dismantling. In its party manifesto, the SPD reiterated that nuclear is phased out in Germany, "and this is good."
• Carbon capture: The CDU/CSU alliance favours expanding the use of carbon capture and storage and carbon capture and use (CCS/CCU) not only in sectors that are hard to decarbonise, but in all industrial sectors as well as gas-fired power plants.
• Domestic gas: The conservatives also want to "exploit the potential of conventional gas production in Germany."
• Speed limit: The SPD has proposed to introduce a 130 km/h speed limit on Germany's motorways, while the CDU/CSU alliance rejects this.
• Single power price zone: The SPD called for examining the possibility of several electricity price zones in Germany from an efficiency point of view, a move which many economists favour. However, this would likely lead to higher power prices in the country's south, and with the CSU in government (the leading party in Bavaria, the federal state that would be most affected) the move seems politically unlikely.
• EU 2040 climate target: The SPD wants to include a sentence on supporting the proposal for a 90 percent emissions reduction target for the EU by 2040. This is not yet agreed between the future coalition partners.
• Offsetting: The conservatives propose that it should be possible to offset “residual emissions” in Germany through “credible CO2 reduction in partner countries in accordance with global and European rules.” It aims to push for relevant changes in the EU ETS and the German climate law. This proposal is also still under discussion in the working group.
• ETS reform: The CDU/CSU pushes for changes to the EU ETS 1 for energy and industry sector emissions: It wants to allow companies to buy emissions allowances post-2038, which would be generated through negative emissions and so-called Article 6 credits. Current rules mean there are no new allowances in the ETS around that time.
• Wind power expansion: The two camps also discuss future wind power expansion targets. While the SPD wants to stick to the current goal of having at least two percent of land earmarked for turbines, the CDU/CSU proposes to replace it with “a renewable electricity target.”
• Combustion engine ban: The CDU wants to reverse the EU's target of banning new combustion engine vehicles from 2035, a deadline that the SPD would stick to.