Germany needs €213 bln more for public investments in climate change mitigation and adaptation – economists

Germany should invest an additional 213 billion euros compared to current budget plans over the next ten years in public services and infrastructure to decarbonise its economy and adapt to the effects of climate change, said a report by the private industry-sponsored German Economic Institute (IW) and the Macroeconomic Policy Institute (IMK). This was necessary to help the country on the path to climate neutrality by 2045. The amount, which IW and IMK call a "conservative estimate", is needed for the energy-efficient modernisation of buildings; grid expansion for electricity, hydrogen and in heating; the production and storage of renewable energies; and the support of energy efficiency and innovation. Of the total, 13 billion euros is meant to help communities to protect themselves from extreme weather such as heavy rain or heat. However, it does not include state support for private businesses, for example to decarbonise industry. The institutes say that an additional 60 billion euros is needed for the country's rail infrastructure and 28 billion euros for local public transport. IW and IMK said the funds should be made possible through new state debt.

Germany is in the process of transforming its entire economy to make the country greenhouse gas neutral by 2045. The transition in all sectors – from energy to industry, transport, buildings, and agriculture – requires investments to change, sometimes fundamentally, the way people live, businesses produce, or how goods are transported across the country. However, a tight federal budget has led to disputes about how to find the necessary funds for public investments. A ruling by Germany's constitutional court in November 2023 dealt a blow to the government's handling of state debt rules and declared the rededication of 60 billion euros in debt authorisations for climate action unlawful. The funds had originally been introduced to help Germany get through the coronavirus pandemic – an extraordinary situation which allowed the government to agree more state debt than is normally allowed by the constitutionally-enshrined  limit of 0.35 percent of annual economic output.

The ruling forced the government to reshuffle the budget, cut spending, and find additional revenues, for example by a faster increase of the CO2 price on transport and heating fuels. The coalition has just entered difficult negotiations on the 2025 German budget, with many ministers asking for billions of euros more for their departments than pre-defined by finance minister Christian Lindner. The minister has rejected calls for a reform of state debt rules, which many economists - including those from IW and IMK - support.