Q&A: What does the German coalition government break-up mean for climate and energy?

Days of intense negotiations in Germany’s three-party coalition over the country’s budget for 2025 culminated in chancellor Olaf Scholz firing finance minister Christian Lindner on the evening of 6 November. The news came almost exactly one year after a seminal ruling by Germany’s highest court on the country’s so-called "debt brake", which declared billions of euros – initially borrowed for pandemic relief but reallocated for climate and energy policy – unlawful. This led to continuous battles within the coalition over how to finance its most important government projects.

In a statement immediately following the sacking, Scholz from the Social Democrats (SPD) said his treasurer, from the pro-business Free Democrats (FDP), had shown “no willingness” to reach an agreement on the budget, even after Scholz and Green Party economy minister Robert Habeck presented various budget proposals to Lindner. “Such egotistic behaviour is incomprehensible,” the chancellor said, adding that Lindner had previously “blocked laws on unrelated grounds” and constantly put the interests of his party above those of the country.

At a time of when the country faces great challenges from economic stagnation, urgently needed energy and climate investments, Russia’s war on Ukraine and the election of a new government in the U.S., Scholz said that he could no longer tolerate his lack of trust in Lindner and that he asked German president Frank-Walter Steinmeier to formally dismiss Lindner from his position. Green economy minister Habeck agreed in a separate statement with Scholz that Lindner’s behaviour was no longer tenable for the coalition. He said the finance minister’s sacking was “as logical as it was unnecessary” at a time when Europe’s largest economy requires a functioning government to weather global challenges.

Lindner, in his own statement, said he had rejected a demand by Scholz to suspend the country’s constitutional ceiling on new debt for 2025 to allow additional investments in economic recovery, the energy system and security, including military support for Ukraine. He also argued that the chancellor had constantly “downplayed” Germany’s economic difficulties in the past months. In the week leading to the break-up, a leaked position paper signed by Lindner  put the FDP leader starkly at odds with his two political partners by demanding a raft of substantial policy measures that contradicted both their coalition obligations and a draft budget agreed in summer, including over climate and energy policy issues.

The finance minister’s departure means that a decision on the 2025 budget before the start of the new year is very unlikely. Likewise, the adoption of an adjusted 2024 budget also appears improbable. The latter is needed as state revenues are lower than expected and expenditures, for example on renewables support, are higher. A decision was initially planned for mid-November, as a new budget legally must be adopted before the beginning of each budget year to allow the parliament’s cross-party budget committee to scrutinise the spending plans for each ministry. This is then followed by a vote in parliament, usually decided by the government’s majority.

The draft 2025 budget agreed during the summer is totalling more than 480 billion euros. The coalition parties were still debating a budgetary hole of less than ten billion euros before the FDP leader’s sacking. However, the budget talks were complicated by the debt brake ruling, which in 2023 forced the government to reshuffle about 60 billion euros earmarked for the country’s Climate and Transformation Fund (CTF). For the 2024 budget, this meant that the spending plan had to be redrawn at the last minute and adopted retroactively, which happened in February of the same year.

However, finding a solution could take significantly longer this time. Even if a minority government continues after the FDP’s removal, there will be no formally agreed spending plan for the election year 2025. The country could end up running with a provisional budget for months on end, starting from 1 January. This means that government spending would be mostly limited to services for which there is a legal claim by recipients. Without a fixed budget for the new year and under provisional spending, no new commitments can be made, and existing programmes cannot be expanded. Support programmes that lack a clear legal claim to funding, including from the CTF, would have to be stopped.

In early 2024, the fact that the government had to postpone adoption of the budget to the new year meant that many programmes financed through the Climate and Transformation Fund had to be temporarily stopped. Applications to the CTF were opened again in late January, after it became clear how much money would have to be cut and where.

Provisional and reduced spending would take effect until the minority government obtains majority backing in parliament or until a new government is sworn in and decides a budget, which might take as long as mid-2025. This would mean months of uncertainty for Germany’s industry, which hopes to secure billions in support funding in the 2025 budget for their contribution to help the country reach greenhouse gas neutrality. If the government fails to agree a budget on time, state support during next year could hang in the balance for many companies.

The government will retain its ability to fund its most important and urgent affairs. This includes the financing of administrations, social security payments, or existing support programmes and construction projects with an agreed spending plan.

The parties have yet to present election programmes for the 2025 federal election, initially scheduled to take place in autumn. Most had planned to do so only around late spring (see here for their positions ahead of the last election in 2021). This process is now going to be sped up significantly.

Current polls show the conservative CDU/CSU alliance, Angela Merkel’s former party, comfortably in the lead at around 35 percent, so that it could lead the next coalition government. Current CDU leader Merz therefore stands a good chance of leading the next government coalition.

It was under Merkele's Conservatives' leadership that Germany introduced its landmark climate law and the target to become greenhouse gas neutral by 2045. However, after moving into opposition in 2021, the Conservatives have opposed several climate policy measures, such as the phase out of combustion engine cars or strict rules to phase out fossil fuel heating. In a recent position paper, conservative lawmakers also called for an expert assessment of whether recently decommissioned nuclear power plants could be reactivated – although chancellor candidate Friedrich Merz has largely ruled this out.

The Social Democrats (SPD) have generally been in favour of more ambitious climate policy. Chancellor Scholz has made clear that he intends to invest heavily into both security — for example support to Ukraine — and social cohesion, social security and jobs. Scholz said an either - or "is poison" when it comes to "investing enough in our security, in good jobs, a modern economy and a functioning infrastructure."

The Green Party has always been in favour of ambitious climate, energy transition and nature protection policy. It has called for an earlier coal phase-out than agreed in Germany (2038 at the latest) and policy in line with the 1.5°C temperature rise limit of the Paris Climate Agreement.

In the position paper that played a part in breaking up the coalition, FDP leader Lindner put into question some key German climate policies. These included measures for emission reductions, such as targets for climate-friendly heating, should be delayed and more ambitious national climate targets be abandoned and replaced by joint European targets and regulation. The finance minister also called for the abolition of EU-wide rules, such as the EU taxonomy on sustainable investment criteria , the EU Corporate Sustainability Due Diligence Directive, and vehicle fleet emissions limits.

The AfD — with almost no chance of entering a coalition, because all other parties have ruled out cooperation — is the only major party to reject the science on human-made climate change, going against overwhelming empirical evidence. In its 2024 EU election manifesto, it said that the "claim of a threat through human-made climate change" is "CO2 hysterics", an "eco-socialist project" which reduces prosperity and takes away freedom. It wants to "abolish all climate laws at the national and European level, as well as stop the Green Deal”.

New to the political scene and with a good chance to enter parliament after the next election is the nationalist-leftwing, anti-immigrant and pro-Russia Sahra Wagenknecht Alliance (BSW), which mostly consist of former members of the Left Party. Wagenknecht's breakaway alliance has criticised much of the government’s climate policy and has called for completely resuming energy trading with Russia.