German industry reiterates call for rethink of country’s decarbonisation strategy
Germany’s most important industry lobby group has said that the country risks becoming a cautionary example in its drive to become climate friendly if it does not do more to ensure its economy remains competitive.
“At the moment, we are not a model pupil,” the head of industry association BDI, Siegfried Russwurm, told business daily Handelsblatt. “We still have to find a way to remain globally competitive and decarbonise at the same time. So far, we have not succeeded in doing so.”
Concerns about the state of Germany’s economy, and industry in particular, have come to the fore as the country heads towards a snap election on 23 February. Industry production has declined as many companies struggle with more expensive energy as a result of the Ukraine war, supply chain problems and increasing competition from China. In recent weeks, plans for mass layoffs at industry behemoths VW, car industry supplier Bosch and steelmaker Thyssenkrupp made headlines, feeding fears of terminal industry decline. Arguments about the right way forward in industry decarbonisation was also a reason for the break-up of the coalition government in early November.
Industry remains committed to decarbonisation
Russwurm said the country urgently needed a functioning government following the upcoming elections, but added that industry decarbonisation was not in question even if forming a new government would take some time. “Industry is committed to decarbonisation,” he said.
The BDI has often said that Germany’s economy can benefit from being a decarbonisation pioneer. In a report from September, the group said green technology was Germany's best bet to remain an industrial leader. But it has also routinely criticised the government’s slow progress in key transition fields, and called for an industrial policy agenda that ensures Germany’s future competitiveness – including additional public funds, cheaper energy, less red tape and better infrastructure.
Russwurm said the new government would have to ask the fundamental question of “How fast, with what effort and in what order should we decarbonise?”
“We need to take a critical look at the current strategy for implementing the transition. Will it have a meaningful impact on the global climate if Germany sets itself the target of becoming 100 percent climate neutral by 2045, while the EU aims for 2050 and China for 2060?”
EU rules determine much of Germany’s climate policy. The union has a joint emissions trading system (EU ETS) to reduce greenhouse gas emissions in the energy and industry sectors. Current rules would bring emissions in these sectors to zero by the end of the 2030s, but could be revised. A new emissions trading system for buildings and transport (EU ETS II) will become operational in 2027.
Germany’s chief energy transition progress evaluator Andreas Löschel, a researcher at Ruhr University Bochum, said the current ETS set a path for a 2045 climate neutrality target for the country. Therefore, it was "not a suitable" question for political strategy, he added in a webinar.
In addition, the EU has so-called effort-sharing rules for these sectors. Germany’s climate target for 2030 is more ambitious than that of less wealthy member states. If this approach is upheld for the following years, Germany would have to reach climate neutrality earlier than some other fossil fuel-heavy member states.
“I believe that Europe can achieve climate neutrality by 2050,” Russwurm said, adding: “Does Germany need to get there sooner? Instead of talking about targets, we should be talking about investment conditions to make climate neutrality possible.”
The September BDI report said that the 2045 target remained technologically possible, but also warned that the government’s timeline for implementation became "less realistic each day."
Russwurm insisted that Germany’s climate target years were “not set in stone.” He added that the 2030 emission reduction targets had become “less and less realistic” because it was “no longer achievable” that the country will have “the necessary back-up power plants” – a planned mix of gas power plants and hydrogen power plants, many of which have yet to be built.
Support for industry ahead of election hinges on deal with opposition
Following the break-up of Germany’s coalition government, it is unlikely that legislative reforms to support industry – proposed by the remaining minority government of SPD and Greens – would still find majority support in parliament. Economy minister Habeck and industry groups have called for cross-party agreements on at least a few projects before the election in February 2025, but the conservative CDU/CSU alliance has so far not been on board.
At an industry conference this week, Habeck emphasised that he sees lowering electricity prices as a crucial short-term measure to alleviate industry concerns. The minister has proposed to use federal budget funds to lower electricity grid fees in 2025. However, to be able to introduce the measure next year, changes to the 2024 federal budget law would be necessary – requiring majority support in parliament.
CDU/CSU chancellor candidate Friedrich Merz told public broadcaster Dlf that it “will not be easy to decide a couple of things last minute,” adding that the budget law would have to be amended to allow further support for industry as proposed by Habeck. “Of course, we look at it without prejudice, but I have my doubts as to whether this is actually possible in the time that remains,” said Merz.
Regarding the planned law to ensure the construction of new gas power plants in Germany – which currently hangs in the balance ahead of the snap election – Merz did not rule out that his party would support an agreement ahead of the elections. However, he suggested that changes to the draft would be a prerequisite.
Funds to support industrial decarbonisation missing
Germany's government has acknowledged the need to ramp up investments in the energy transition and decarbonisation and decided to provide dozens of billions of euros through the Climate and Transformation Fund (CFD) to finance key measures in these areas.
However, a lawsuit filed by the opposition in late 2023 led the country's highest court to rule that large parts of these funds had been booked unlawfully and violated the country's constitutional limit on new government debt, which forced Scholz's coalition to cut expenses across the board to present a viable budget.
Following the coalition government's break-up, industry support programmes are up in the air. This includes the second round of auctions for climate contracts: a subsidy scheme, which would reimburse industrial companies for the extra costs associated with climate-friendly methods of production, and which had elicited strong interest.
