Dispatch from Germany | August '24

Stories to watch in the weeks ahead

• String of eastern state elections – Populist parties, namely the far-right Alternative for Germany (AfD) and the nationalist and left-wing Sahra Wagenknecht Alliance (BSW), are expected to make large gains in the three formerly communist states of Thuringia, Saxony (both on 1 September) and Brandenburg (on 22 September). Both parties are critical of the federal government’s energy and climate policies and call for the full resumption of fossil fuel trading with war-waging Russia. While the coalition government of chancellor Olaf Scholz is not directly affected by the regional ballots, results nonetheless could reverberate strongly on the federal level: the ambition of the country’s future energy transition could face a difficult test. A government official said that the eastern states risk to undermine one of their greatest assets for future prosperity.
• Protecting critical infrastructure– Germany's government is set to discuss a draft law that aims to improve the protection of so-called critical infrastructure against physical damage "shortly after the summer break." Companies in the energy sector – one of 11 considered “critical infrastructure” – should draw up protection plans considering all potential risks, including natural disasters, human error and acts of sabotage.
• Power market reform – Germany's government aims to further accelerate the electricity sector’s decarbonisation through a far-reaching market reform. In a paper outlining fields of action, the economy ministry (BMWK) in early August presented possible changes to renewables support, new incentives for flexible power use, local pricing signals, and design options for a future so-called capacity market. The capacity mechanism should create the business case for new hydrogen-ready gas power plants, but also include decentralised elements, such as storage facilities and flexible loads, by 2028. Discussions about these fundamental changes are set to gather pace in the coming weeks.
• Future of biomass– Biogas plants – fed with forestry and agriculture waste, for example – can continue to play an important role in Germany's future energy system. Economy minister Robert Habeck announced that a "comprehensive biomass package" with new funding options for operators would be presented "soon." The subsidy design should pave the way for biomass in the capacity market (mentioned above), so they can flexibly provide electricity when needed (a change in direction of subsidisation policy for biomass so far), Tagesspiegel Background reported.
• LNG anyone? – The controversial new terminal for liquefied natural gas (LNG) on Germany’s Baltic Sea coast is ready for operation - but it lacks demand, according to media reports. Environmental groups have warned that the government’s plans for substituting Russian pipeline supplies with LNG could be oversized. According to media reports, the first LNG cargo shipment is not expected until the end of August.

The latest from Germany – last month in recap

• Budget conundrum (again) – The coalition government has re-agreed on a budget for 2025 after advisors to the finance ministry cast doubts on a draft agreement. The agreement has come under fire for what researchers criticise as "optimistic assumptions without secure financing." It will now be debated in parliament, with a final green light expected later in the year.
• Search for nuclear waste site at a glacial pace – After Germany's nuclear phase-out in early 2023, the search for a final repository is very much still ongoing. A report commissioned by the country’s Federal Office for the Safety of Nuclear Waste Management (BASE) found that a decision on a location can be expected no earlier than 2074 – under ideal conditions. However, the environment ministry said the findings were outdated, and that the search may be completed earlier. The original 2031 deadline for deciding on where to store highly radioactive waste was scrapped two years ago.
• Coal drop gathers pace– The decline of coal-fired power production in Germany continues apace. Warmer than usual weather and the ongoing economic slump in the EU‘s biggest economy have reduced energy demand by more than three percent in the first half of the year - while demand for hard coal and lignite dropped by almost 20 percent between January and the end of June. 
• Electric car troubles – Electric cars are gaining popularity and market share across the world, but currently face sluggish demand in Germany, the birth country of the automobile and the world’s second largest production location for EVs. Carmaker Volkswagen and major industry supplier ZF both released figures that fuel fears their plans for ramping up electric mobility might have been oversized. Both are preparing layoffs at their production sites, as buyers do not line up to purchase EVs as expected – not least because the government scrapped a support scheme in late 2023 in response to a budget crisis. Industry expert Ferdinand Dudenhöffer estimated that political decisions have set the country's electromobility growth target back at least five years.

Benjamin's picks – Highlights from upcoming events and top reads

• Ahead of the elections in three former East German states, we highly recommend you read CLEW's deep dive: Legacy of East-West divide lives on in Germany's climate and energy debate. It's not only an overview of what's at stake in the fields of climate and energy, but is also a very accessible way to learn about the continued influence of the former separation, how common ground has been found in the past decades and where East Germany has taken the lead regarding the country's energy transition.
• If you've ever wondered what a "sponge city" actually looks like, this DW report on how the cities of Berlin and Hamburg are adapting to periods of drought – with cool photos – is well worth your time.
• Politico's story on how climate adaptation is "driving a wedge between Europe’s climate-hit south and the less-affected north" highlights the potential conflict between spending for climate adaption and for emission reductions, an issue we will also discuss with international top experts at our CLEW conference next month.