Key climate and energy tasks for Germany's next government
Content
- Provide adequate backup capacity for the growing share of renewable power
- Agree on reconciling national debt brake with urgent need for new investments
- Improve heavy industry competitiveness while pushing decarbonisation forward
- Clarify the path to climate-friendly transport – both for citizens and carmakers
- Heat buildings with fewer emissions while keeping homes affordable
- Provide industry with clarity on carbon capture and storage (CCS)
- Lead efforts to ensure unified EU on international stage as Trump shakes global order
Provide adequate backup capacity for the growing share of renewable power
Providing backup capacity for the German electricity system amid the transition to renewable power is one of the most urgent policy tasks that the new government will be facing in the electricity sector. The need for additional backup capacity for times of little wind and sunshine, so-called Dunkelflaute (dark doldrums) periods, became obvious repeatedly at the end of 2024, when low renewables output led to more electricity imports and a spike in prices that also affected some of Germany’s neighbours. On the plus side, there already is a consensus on what needs to happen in principle: Constructing dozens of small gas power plants – some hydrogen-ready – that are supposed to replace coal-fired power plants as these are all phased out gradually by 2038 at the very latest. An earlier coal exit will become increasingly difficult if no new plants are built.
On the other hand, the collapse of the coalition government prevented a decision in parliament over the Power Plant Security Act, which was drafted by the outgoing government to ensure construction of the plants that are expected to often only run for a fraction of the year and thus are difficult to operate in an economically viable way. Auctions for the new H2-ready gas power plants are supposed to commence in the first half of 2025, with the first plants scheduled to be operational by 2030. However, the energy industry worries that this timetable is no longer realistic and urges the next government to present a workable strategy for implementation in its first 100 days in office. Despite the conservative CDU/CSU’s plans to review the use of nuclear power in Germany, nuclear reactors no longer play a role in plans to ensure grid stability in the transition to renewables. Due to their innate inflexibility, they are also less suitable for short-term deployment.
Agree on reconciling national debt brake with urgent need for new investments
A ruling by Germany's highest court in November 2023 declared an integral part of the outgoing coalition government's funding plan for climate and energy programmes unlawful, dealing a major blow to Olaf Scholz’s coalition government. The court's decision threw the coalition's funding plans through a special Climate and Transformation Fund worth 60 billion euros into disarray and contributed to the early end of the coalition. The ruling resulted from a lawsuit filed by the CDU/CSU alliance under opposition leader Friedrich Merz. While Scholz’s SPD and the Green Party both quickly called for a reform of the debt brake, which was constitutionally enshrined in 2009 and stipulates that new debt must not exceed 0.35 percent of annual economic output, the CDU/CSU and the former coalition member FDP initially rejected changes to the rule.
However, citizen surveys suggested that a majority prefers investments in areas such as climate, defence or infrastructure over adhering to the debt brake. Likewise, industry representatives, civil society groups, many cities, economic advisors and state governments all have warned that the rule could severely impede their ability to navigate the current challenges. CDU leader Merz, meanwhile, has signalled that he is open to reviewing the debt brake. Apart from implementing direct changes to the constitution, which requires a two-thirds majority in parliament, the next government could also use the debt brake’s escape clause. This option, which only requires a simple majority, suspends the ceiling in exceptional cases and national emergencies, as it was used, for example, in response to the coronavirus pandemic.
Improve heavy industry competitiveness while pushing decarbonisation forward
The weakness of Germany’s economy and the declining output by its basic industry heavyweights were a major concern among businesses, voters and policymakers during the election campaign. The country’s long-standing recipe for industrial success no longer works, because it was partly based on cheap Russian gas, reliable international demand for products “Made in Germany,” and U.S. security guarantees. There is a broad consensus that the new government must take rapid action to lower industry energy costs and clarify decarbonisation subsidies to provide long-term planning security, which companies demand above all else.
Climate policies have occasionally been blamed for German industrial woes during the election campaign. But industry groups and most experts agree that the switch to climate-friendly technologies is not an obstacle to securing international competitiveness on future markets, but rather a precondition for success in a decarbonising world. This will require huge investments and difficult decisions on which energy-intensive industries Germany wants to keep, no matter the cost. Companies urgently await answers from the new government, and so do Germany’s EU partners, given that the bloc’s largest economy is key for shaping EU industrial policy.
Clarify the path to climate-friendly transport – both for citizens and carmakers
Germany’s transport sector is one of the biggest hurdles to reaching the country’s 2030 climate targets, while troubles at its iconic carmakers VW, Mercedes and BMW, as well as its national railway system, make headlines. The automotive industry, which employs around 800,000 people in the country, is struggling to master what it calls the “biggest industrial transformation” of its history. This involves the shift to electric vehicles, including growing competition from Chinese brands, such as BYD, but also other challenges like the trend towards autonomous driving.
Companies as well as consumers urgently need clarity on the way forward. The collapse of electric vehicle sales in the wake of the sudden subsidy cuts in 2023 have shown the heavy costs of policy zig-zag. This is why most experts – and also many industry players – advise against reversing the EU’s 2035 combustion engine phaseout, or promoting synthetic fuels as a realistic alternative to electric cars. Increasingly frustrated citizens also demand rapid action to end the debacle of delays and cancellations at Germany’s once-proud rail service Deutsche Bahn.
Heat buildings with fewer emissions while keeping homes affordable
Germany now has a plan to gradually phase out oil and gas boilers, which are the main cause of emissions in the buildings sector. Passing the "heating law," which spells out this plan was, however, mired in controversy and tremendous backlash. Over 70 percent of the country’s buildings are heated with fossil fuels, and the sector is set to miss its 2030 emission reduction target.
To incentivise the move to cleaner heating alternatives, Germany has a levy known as the carbon price for emissions in the sector. This national carbon price will have to be integrated into an EU-wide system in 2027, and is set to increase significantly. Agencies have warned that households – especially the poorest – might not be able to react to these rising prices by implementing energy efficiency measures, such as insulating homes or installing heat pumps, and thus need better protection.
Energy poverty is on the rise in Germany, while a growing number of citizens say they feel financially unable to keep their homes adequately warm. At the same time, the upfront cost of replacing oil and gas boilers with cleaner alternatives is currently higher than with dirty ones. The next government will have to find a way to financially support households that feel unable to participate in the clean transition, while taking decisive steps to align the sector closer to its climate targets. The introduction of a "climate bonus" compensation scheme, which would return revenues from carbon pricing directly to citizens, remains a promise to be met.
Provide industry with clarity on carbon capture and storage (CCS)
Climate researchers say that – in addition to emission reduction efforts – technologies to capture and permanently store CO2 will be needed as the world tries to limit temperature rise to two degrees Celsius or less. This is why the outgoing government ventured to pave the way for CCS and CCU (carbon capture and use) mainly for industrial processes, where emissions are difficult or impossible to avoid. Until now, CCS has been either forbidden or limited by law. The government proposed to allow storage under the seabed and underground onshore and introduce state support to ramp up the necessary market.
However, after the coalition collapsed, the parties failed to agree on final details of the reform of the carbon storage law, and the next government will have to re-introduce the reform in parliament. Industry criticised the lack of planning security and said that this meant Germany would lose a year in building the necessary CO2 infrastructure. A second round of the “climate contracts” industry subsidy programme was meant to focus on carbon capture, but it is unclear now whether the programme will be continued under the next leadership. The next coalition will also have to decide whether to allow CCS for gas-fired power plants.
Lead efforts to ensure unified EU on international stage as Trump shakes global order
The first weeks of re-elected U.S. president Donald Trump in office have set a challenging scene for Germany's next government, heralding in a new era of geopolitics and pushing transatlantic relations to a new low. Defence policy and the future of Ukraine are in the spotlight, but the coalition that will govern Europe’s biggest economy for the next four years will play a key role in making the union competitive on the world stage, further shaping the climate-friendly transition and ensuring energy security.
Under a likely conservative-led government, Germany could support efforts to weaken certain elements of the European Green Deal, such as the zero-emissions car rule for 2035. Still, the next leadership is set to be pro-European, and will continue to see climate change as a crucial security challenge. A tight federal budget could pose a hurdle to reaching Germany’s target to provide six billion euros from its state coffers annually from 2025 for climate action in developing countries.
