Uncertainty from govt turmoil casts doubt over Germany’s energy transition progress
In its final year before the next scheduled federal election on 28 September 2025, Germany’s three-party coalition government is increasingly divided. Waning approval figures, budget woes, a weak economy and several election defeats as populist parties rise make the partners worry about their political future.
Against the backdrop of a political landscape that is more fractured than ever in the country’s modern history, the shaky government of chancellor Olaf Scholz’s Social Democrats (SPD), the Green Party and the Free Democrats (FDP) finds it increasingly difficult to agree compromises on key energy and climate issues. This triggers uncertainty in the economy and casts a shadow over what industry and researchers see as considerable progress made on the energy transition in the past three years.
“Germany, like much of Europe, is seeing a shifting political landscape, driven by the normalisation of far-right parties and platforms, an economic slowdown following an initially mild impact from the energy crisis that Russia created, and the effects of external pressures like hybrid warfare,” says Pieter de Pous, an advisor at think tank E3G.
“Despite these challenges, Germany has been successful in putting its energy transition back on track,” he told Clean Energy Wire, highlighting the accelerated renewables buildout and policy to help industry switch to decarbonised production processes.
And yet, criticism is mounting. Controversial plans to phase out fossil fuel heating came under fire from within the coalition, by the opposition and by many energy experts, and caused uncertainty and sometimes anger among the population. Sudden cuts to state subsidies like e-car buyer’s premiums and support for energy counselling when refurbishing homes to become more energy efficient added to the frustration of citizens.
Businesses have also criticised uncertainty and a lack of action by the coalition to ensure Germany remains a sought-after business location, offering secure energy supply at competitive prices. The coalition agreed to support industry that struggles with high electricity prices, but companies are calling for additional measures.
Limited space for new policy initiatives during final year
The country’s leading economic research institutes said that higher energy prices mean that Germany’s energy-intensive industry is set to be less competitive in the long run. They downgraded their forecast for 2024 and now see the economy shrinking by 0.1 percent, following a 0.3 percent contraction 2023.
The government should make progress regarding the expansion of new gas-fired power plants – a major precondition for the coal phase-out, which will otherwise not be feasible.
In its efforts to ensure long-term electricity supply security, the coalition has presented plans for subsidies to help build new gas-fired power plants for times of little wind or sunshine, but implementation has been delayed for many months.
Germany’s chief energy transition progress evaluator Andreas Löschel says the three-party coalition government should make sure it uses the final year of its term to tackle this.
“The government should make progress regarding the expansion of new gas-fired power plants, including the planned capacity market,” says Löschel, researcher at Ruhr University Bochum, who also heads the independent expert commission charged with monitoring the country’s energy transition. “This is a major precondition for the coal phase-out, which will otherwise not be feasible.” Germany’s previous government introduced legislation to end coal use by 2038 at the latest, and the current coalition said it wanted to pull this date forward to 2030.
However, with continuing infighting within the coalition, it remains to be seen what it is able to actually accomplish in the remaining 12 months.
“As Germany heads toward the next federal election, with coalition dynamics becoming increasingly challenging, the space for major new policy initiatives is limited,” says de Pous.
He calls on the parties to use the final year to ensure that fossil-free alternatives become more affordable and easily available to households and industries – “in particular to avoid a backlash when carbon pricing in the building and transport sectors is fully implemented.” Experts have warned of a possible price jump once the EU’s carbon emissions trading system for transport and heating fuels starts fully in 2027.
Will the shaky coalition hold until next September?
The government’s public approval was still positive during the worst of the energy crisis, but has been on a downward trend ever since, pushed by worries over the economy, inflation and migration.
However, climate policy also had a part to play. A leaked draft law on phasing out fossil fuel heating marked a turning point, after which a majority in the population said the government did a “rather bad” job. Earlier plans to effectively ban new gas heaters by the beginning of 2024 were later watered down, but not before causing widespread worries and uncertainty among citizens about whether they would be forced to spend a lot of money on replacing current systems with climate-friendly heating.
The controversial public debate was fuelled by many media reports slamming the Green-Party-led economy ministry’s plans, and widened cracks in the ruling coalition between the Greens, who want to heat homes mostly with electricity from renewable sources, and the FDP, which is calling for "technological openness" that includes burning a range of gases.
Coalition infighting reached a new high after a ruling by Germany's highest court in November 2023 declared an integral part of the government's funding plan for climate and energy programmes unlawful. The need to make painful budget cuts and reshuffle priorities laid bare crucial differences between the three parties’ policies, which could no longer be plastered over with money.
Elections in three eastern German federal states September did little to calm the waves. Big losses for all three coalition partners in almost all the votes have put pressure on them to make changes, and it is unclear whether the coalition survives until September 2025.
Just days after the 22 September 2024 state election in Brandenburg, tabloid Bild Zeitung reported that the FDP was working on an exit strategy. Polls show that each government party had reason to fear the loss of a large share of support compared to the election in 2021. The FDP could even fail to enter parliament, missing the five-percent threshold. However, at this point a drastic step like leaving the government could be worth the risk, if a large-enough part of the population rewarded the party that kills the unpopular alliance, political scientist Christian Stecker told Focus Online.
One party leaving the coalition would not immediately lead to early elections, as there are much higher hurdles in Germany than for example in France, where president Emmanuel Macron called snap elections in summer. In case the FDP pulled out, Scholz would remain chancellor and could lead a minority government made up of the SPD and the Green Party. It would be a first in Germany and would make finding majorities for any legislation extremely difficult – including agreeing a federal budget for 2025, which should happen around late November.
To lead to early elections, Scholz would have to initiate a vote of confidence and lose it. Then, parliament could elect a new chancellor in the current make-up – which, given the majorities, is not very likely – or Germany’s president Frank-Walter Steinmeier could call new elections.
Parties gearing up for campaign year
While the coalition parties fare badly in current polls, the far-right AfD and the new nationalist, left-wing, anti-immigrant and pro-Russia Sahra Wagenknecht Alliance (BSW) could make significant gains if new elections were to be held soon. They share their fierce opposition to the government's climate action and energy transition policy.
The AfD has not yet entered national or regional governments, and all established parties have ruled out cooperating with the group. Researchers say the party's influence has mostly been confined to debates, causing further polarisation on climate issues.
Unfazed by dwindling approval figures, Scholz has said that he will run again to become chancellor after the next election. The Social Democrat, who has often been criticised for a lack of leadership or even “invisibility” as chancellor, could officially be nominated at a party conference in mid-2025. It is up to the party to decide and Scholz is firmly in the saddle, but polls show that many Germans would prefer it if the SPD defence minister Boris Pistorius were to become the lead candidate.
Former chancellor Angela Merkel’s CDU – which had led Germany for 16 years during the previous four legislative terms and has been accused of delaying climate policy for years – has also profited from the shaky coalition government. The party looks likely to lead the future governments in two of the three states that were up for election – Thuringia and Saxony. The conservative alliance of CDU and its Bavarian sister party CSU currently by far leads national polls at a share of 30 percent and more.
The alliance has recently announced that Friedrich Merz is its chancellor candidate. The internal party rival from Merkel's early days as party head became CDU leader himself in 2021, after he largely disappeared from the public sphere in 2009 to work as chairman of the supervisory board of the German branch of investment company BlackRock. The conservatives could seek a coalition deal with the Greens after the elections, despite comments by Merz that this would not be possible “from today’s perspective.”
The Green Party, meanwhile, is looking for a “fresh start” after the current party leadership decided to resign following the eastern state elections. The party looks set to consolidate behind vice chancellor and economy minister Robert Habeck, who will likely be nominated chancellor candidate at a party conference on 15-17 November.
Habeck told broadcaster ARD that he intended to bring the government’s term to its regular end, saying one cannot run away when things get “a bit difficult.” He said the Greens’ key task in Germany was to ensure “climate protection and a society that holds together.” Habeck had previously expressed confidence that the country’s efforts to reach climate neutrality by 2045 would not be derailed by a change of government after the next general election.
The Greens have recently struggled to benefit politically from their core topic. Following several years in the late 2010s, during which voters’ calls for an ambitious climate policy dominated the debates and helped the Green Party increase its share in the elections, the tide has turned somewhat.
Researchers argue that there is no real green backlash. Polls show that people still want ambitious climate action, but other issues are taking the spotlight, making it “harder for advocates to win arguments for spending limited financial and political capital on the transition,” wrote Steve Akehurst, a communications expert looking at what influences voter opinion on progressive policy ideas.
Government commended for energy transition progress
The energy sector and industry have often commended the government for its policy, especially how it handled the energy crisis, which was exacerbated by Russia’s invasion of Ukraine just two and a half months after chancellor Scholz took office.
“Particularly against the backdrop of the enormous challenges that the government has faced since the start of the legislative period, it took significant steps to implement the energy transition and ensure security of supply,” says Kerstin Andreae, who heads Germany’s energy industry association BDEW.
The former Green Party MP emphasises that it was not just about handling the immediate crisis. “At the same time as it dealt with the challenges posed by the war of aggression against Ukraine, the economy ministry also adopted many important measures that will accelerate the expansion of renewable energies.”
These measures have started to bear fruit. An all-time record of one million new solar power systems were installed across Germany in 2023, and the wind power sector is overcoming what industry lobby group BWE has called a “politically caused” dent in newly installed capacity between 2019 and 2021. Coal power has returned to its downward trend following a rebound after the pandemic and during the energy crisis.
Overall, the coalition’s track record on the energy transition is mixed, says energy transition researcher Löschel. “The governing coalition has initiated a great deal on energy and climate policy in the last three years and Germany has made good progress, for example on renewable energies,” he says.
The government has set the right priorities, but implementation is taking longer.
However, Germany is still lagging behind in many areas of the energy transition, he adds. “This is because the government has set the right priorities, but implementation is taking longer. This applies, for example, to the expansion of new gas-fired power plants for security of supply, the expansion of grids and the hydrogen ramp-up.” His commission criticised lagging progress in many sectors in a report earlier this year.
Equally, the Council of Experts on Climate Change – the country’s main independent body charged with assessing climate policy and its effects – continues to highlight that a lot more needs to be done especially in the transport and building sectors, which have missed climate targets. Research project Climate Action Tracker rates Germany’s overall climate action as “insufficient,” saying that “the government remains divided on comprehensive action across all sectors, leaving the country’s climate targets in danger.”
NGOs have launched lawsuit after lawsuit to force the government to up its game on what activists say is “inadequate” climate policy.
Industry worries about lack of planning security and high energy prices
Getting most attention in the current public debate, however, is Germany’s industry – from its famed car sector to heavy industry like steel or chemicals production.
Faced with the transformation to sustainable mobility, German car manufacturers are struggling with global competition, weak sales figures and the high costs of switching to electric vehicles. Hit particularly hard by the industry crisis, Volkswagen has recently terminated a job security agreement with unions in Germany that has been in place for decades, making factory closures and redundancies a possibility. The government is currently debating measures to help the sector.
There is currently far too little planning security as to whether and under what conditions energy and low-CO2 hydrogen will be available on site.
The chemical industry suffered especially hard when gas prices reached record highs during the energy crisis. It needs the fuel as a raw material for its products, but also as an energy source.
“The German government has done a very good job in the immediate fight against the energy crisis,” says Matthias Belitz, head of sustainability, energy and climate action at chemicals industry association VCI. However, the crisis “threw the energy transition out of step.” The government had planned with fossil gas as a transition fuel on the path to climate neutrality, as it causes fewer greenhouse gas emissions when burned than oil or coal.
However, while prices have stabilised since the peak of the crisis, they are still higher than in many years leading up to it. In addition, they are much higher in Germany and Europe than in other parts of the world, putting companies at a competitive disadvantage, says Belitz, warning that the opportunities the transition could bring are “fading into the background.”
An equally tough problem is the current uncertainty about the future development of industry policy, including on energy prices and the ramp-up of green hydrogen. The budget crisis led the government to decide funding cuts for the hydrogen ramp-up in 2025.
“There is currently far too little planning security as to whether and under what conditions energy and low-CO2 hydrogen will be available on site,” says Belitz. “The necessary investment decisions our companies need to initiate soon are correspondingly difficult.” He calls on the government to ensure competitive energy prices and taxes, “massively accelerated” planning and permit procedures and a substantial reduction in bureaucracy.
Looking ahead, E3G’s de Pous emphasises Germany’s role in the EU. The union is in the midst of the process of building the next leadership in the European Commission and formulating policy goals for the coming five years. Commission president Ursula von der Leyen has said that climate change and the Green Deal will continue to be a major backdrop for all the union will do, and has proposed a clear focus on industry transition. She will propose a Clean Industrial Deal within the first 100 days of her mandate.
Thus, in its final year, the German government should “continue to provide leadership within the EU by shaping the next phase of the European Green Deal and delivering a cohesive policy package consisting of climate ambition, industrial policy and investments that will benefit all EU countries, especially those in the East,” says de Pous.
However, that leadership has seen better days. Germany squandered a lot of trust at EU level under the current government, drawing criticism for hefty state support plans during the energy crisis, as well as for partly backing away from negotiation agreements such as the combustion engine car phaseout.
