Report calls for reduction of environmentally harmful subsidies in Germany

A new report commissioned by Germany’s Bertelsmann Stiftung and carried out by the Forum Ökologisch-Soziale Marktwirtschaft (FÖS) economic think tank, criticises the German government for failing to reduce subsidies it describes as “superfluous, ineffective and harmful to the climate and the environment.” While the government originally agreed to reduce such subsidies, it had so far failed to do so, impeding the country’s ecological transformation, said the report. Part of the problem has been the difficulty of defining what falls under these subsidies, according to the report. Despite the government struggling to secure funding in nearly all other policy areas, a total of 65 billion euros in environmentally harmful and climate-damaging subsidies – from support for energy-intensive industry to tax exemptions for company flights – remain intact, undermining effective climate protection policy.

For example, the government in 2018 granted 41 subsidies in the form of financial aid and tax breaks that favour the use of fossil fuels, said the report. The German Environment Agency (UBA) had labelled 35 tax credits as “harmful to the environment”, but only 14 of them were listed in the government’s subsidy report. Indeed, according to the finance ministry, 21 controversial government assistance programmes, including billions for company cars and diesel fuel, are not officially recognised as subsidies at all due to tax considerations. The report finds that many of the original justifications for existing subsidies no longer hold up today. Diesel subsidies that primarily benefit users of diesel cars, for instance, were approved in the early 1990s to protect road freight transport from international competition. The FÖS experts argue that the controversial subsidies should be recognised as superfluous, ineffective and environmentally harmful, thus helping to set the direction for the government’s reform agenda.

In its latest assessment of government climate proposals, the Council of Experts on Climate Change called on the government to finally tackle climate-damaging subsidies. The government had said in its 2023 climate programme that it wants to present a reform package, "but when and in what form is very unclear," said council member Brigitte Knopf. "The government must present a concrete plan."